Airfare Hikes Expected to Stick in Wake of Rising Oil Rates

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Photo, lrargerich, flickr

U.S. airlines are responding to rising oil prices this week with increased airfares that are expected to stick. Low-cost carrier Southwest Airlines threw its hat into the ring with $10 roundtrip increases across the board and the larger carriers announced fare hikes of $20 to $60 per trip.

The moves come after a yo-yo drama of fare increase announcements and rollbacks that played out in recent days among the legacy carriers.

American, United, Continental and US Airways raised prices Monday by $20 to $60 per roundtrip and Delta Air Lines matched the increase Tuesday, making it more likely to stay.

Last week, however, Delta led an effort to boost higher-end seat prices by $40 to $120 per roundtrip that failed when US Airways, which initially matched the increase, rescinded that decision.

If only one major airline refuses to back the increase, the wave of price rises can flatten. Such a reversal could still happen again this week, but if it does, the reversal will be temporary says airline analyst Michael Boyd of the Boyd Group International, an airline consulting firm.

"Eventually these prices will have to stick. Oil prices are bouncing around $100 a barrel so airlines are planning for this," says Boyd. "It's not like 2008 when oil hit $147 a barrel and airline executives were hiding under their desks in the fetal position."

Leisure fliers may not immediately experience the effect of these fare hikes, however, adds Boyd. The increases are aimed mostly at business travelers, applying to seats in the front of the plane, and also walk-up tickets purchased at the time of travel. In coach, there will likely be far fewer seats available at the lowest rates but you will still see those lower rates advertised, he says.

Airlines are paying at least 50% more for jet fuel than they were a year ago. To compensate, the latest fare increase marks the fifth time airlines have raised seat prices since December.

According to Travelocity, current domestic airfares are generally 8% higher this year than in the period from mid-March to late April of 2010, with an average round trip costing $379. International trips are costing 10% more, with an average fare of $694 round trip.

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