Airfares Rise With Oil Prices

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Airfares are going up both domestically and overseas as unrest in the Middle East continues to boost oil prices, forcing airlines to absorb what could be billions in jet fuel costs.

Industry officials warned that a sustained crisis in several oil-producing nations could hurt the industry's fragile recovery, noting that international air traffic rose 8.2% in January from a year ago, but oil prices could derail a razor-thin 1.5% profit margin.

"It's not clear just how long [rise in oil prices] is going to last," Steve Lott, spokesman for the International Air Transport Association, told AOL Travel News. "Is it a temporary spike or is it going to be sustained for some time to come?"

South American carrier LAN Airlines said on Friday that it would raise fares 8 to 12% on international routes due to higher fuel prices, according to Bloomberg News.

Even before the Libyan revolt, British Airways raised ticket prices on Feb. 8, noting it has to spend more than $11 million a day on fuel costs. Libya supplies about 2% of the world's oil supply, and has strong ties to several European markets.

"We have tried to absorb as much of the cost as we can of the rising cost of fuel," said spokeswoman Michele Kropt, "but we do also have to have to pass some of these increases onto our customers buying new long haul tickets."

BA cited a 14% increase in jet fuel prices since its last fuel surcharge in December. The new surcharge meant that tickets prices rose more than $54 for first class tickets and more than $38 for coach and premium economy class tickets, called World Traveller and World Traveller Plus on BA.

JetBlue also imposed fuel surcharges of $35 each way on flights to and from Puerto Rico and $45 each way on flights to and from other points in the Caribbean, in late January.

Southwest Airlines, the largest discount carrier in the U.S., announced a $10 fare hike on roundtrip tickets on Feb. 18, citing rising fuel costs. Spokesman Brandy King tells AOL Travel News the airline has not seen any decrease in demand, but was looking for ways to streamline operations to minimize fare hikes.

Delta Air Lines last week raised prices up to $120 on last-minute fares, and was matched by rivals including American, United and Continental, however US Airways pulled back later in the week. These increases are expected to most impact business travelers (rather than leisure travelers).

Analysts said the airline industry will continue to test the elasticity of demand, as the recovery was largely achieved by flying planes filled to capacity.

"Four or five years ago, the airlines would have been happy to fly with 1/3 of their seats empty," said Rick Seaney, chief executive of FareCompare.com. "They're going to continue to probe."

An American Airlines official declined to comment on that carrier's fare strategy, referring calls to the Air Transport Association, a Washington-based industry organization.

The ATA estimated that the industry would see an $8.2 billion increase in the cost of jet fuel, based on a Feb. 8 jet fuel forecast from the federal government.

"This figure is likely conservative since there has been more unrest in the Middle East since the forecast was released," ATA spokesperson Victoria Day told AOL Travel News.

ATA estimated that a $1 increase for a barrel of oil translates to $405 million to $430 million in costs to the airline industry.

The International Air Transport Association estimates jet fuel prices are up 39% from a year ago to $119 a barrel.

Travel analysts say that independent business travelers would likely bear the brunt of the fare hikes.

"For the small business traveler, you're going to have to look harder to find a discount," said Andy Menkes, president of Princeton, N.J.-based Partnership Travel Consulting.
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