This article from NYTimes.com has been sent to you by psa188@xxxxxxxxx /-------------------- advertisement -----------------------\ Explore more of Starbucks at Starbucks.com. http://www.starbucks.com/default.asp?ci=1015 \----------------------------------------------------------/ Most Airlines Increase Domestic Fares by $5 May 13, 2003 By EDWARD WONG The six major airlines increased domestic air fares $5 each way on almost all tickets over the weekend, the most significant fare increase in more than a year. By midafternoon yesterday, four low-cost airlines had matched the fare increase. American Airlines, a unit of the AMR Corporation, was the first to put the price increase into effect, last Thursday, said Terry Trippler, a fare expert at cheapseats.com. One by one, airlines matched it over the weekend. Delta Air Lines and US Airways were the last of the big airlines to do so, early yesterday morning, Mr. Trippler said. Executives and industry experts have said repeatedly that the airlines need to raise prices because revenue is low. But falling demand in the last couple of months - because of the war in Iraq and the spread of SARS - made it impossible for the airlines to raise fares. Two recent changes have emboldened the companies, analysts say. One, Congress passed a law in April that repeals until October a security tax of $2.50 on each leg of a flight that was levied on passengers shortly after the Sept. 11, 2001, attacks. The tax relief has in theory given the airlines more pricing power, Jamie Baker, an analyst at J. P. Morgan Chase, wrote yesterday in a note to investors. Domestic passenger traffic has also picked up somewhat in the last few weeks. For the week ended May 4, domestic traffic rose 0.2 percent from the period last year, according to the Air Transport Association, the industry's main trade group. The previous week had an increase of 4.1 percent. International traffic, however, remains severely depressed. Trans-Atlantic traffic for the week ended May 4 was down 16.9 percent compared with the period a year earlier, while trans-Pacific traffic was down 36.6 percent, clearly because of fears related to the outbreak of severe acute respiratory syndrome. In that week, systemwide traffic was down 5.8 percent from the year earlier, and airlines decreased the number of seats by 11.7 percent. The reduction in seats coupled with the slight increase in domestic traffic probably influenced the decision by the airlines that passengers would pay $5 more to fly one way. Mr. Trippler said he thought the price increase would stick because the six largest airlines all put it into effect. In the last year, the industry had tried similar systemwide increases, but Northwest Airlines generally declined to match fare increases. That prompted rivals of Northwest to drop the increases after several days. This time, Northwest went along with the fare increase, on Sunday morning. "This pretty much makes it official, folks - this one's going to stick," Mr. Trippler wrote in an e-mail message. He said in an interview later that the increase applied to all routes and had been placed on all fares except some that were on sale. Mary Stanik, a spokeswoman for Northwest, said her airline was not commenting on why it decided to go along with the increase. Mr. Baker, the analyst at J. P. Morgan Chase, noted that "perception may exceed reality" - in other words, that it remains to be seen whether passengers will actually pay the higher prices or whether they will shy away from flying. The true test, he wrote in his note, will come in October, when the temporary suspension of the security tax ends. Airlines will be "faced with either rolling back their increase in base fares or testing consumers' willingness to pay more out of pocket," he wrote. Of course, he added, the airlines might decide to test this sooner by putting another price increase into effect. Much will depend on whether traffic numbers rise, and whether airlines can further cut capacity to get better leverage to raise prices. http://www.nytimes.com/2003/05/13/business/13AIR.html?ex=1053832820&ei=1&en=1266a6a8d8da753d HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@xxxxxxxxxxx or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@xxxxxxxxxxxx Copyright 2003 The New York Times Company