Airlines Add It Up | Fees are here to stay, while routes may come and go. That makes air travel your biggest challenge in the year ahead. | Oct 2008

Financial & Insurance Meetings

Nov 1, 2008 12:00 PM, By Rob Carey

With oil prices spiking up more than 70 percent since early 2007 and jet fuel now representing up to 40 percent of airlines' total expenditures, airlines are doing what they must to survive. Most carriers have imposed several increases in their fuel surcharges...— on top of fare hikes. They're adjusting plane sizes to the demands of individual routes and making fewer trips to and from fewer cities, resulting in a significant loss of seat inventory in many markets across the country ...

Most have imposed $25 fees for the first checked bag, plus fees for pre-assigned seats and other small conveniences. To compound the problem, several smaller carriers ... could not stay in business, further narrowing flight choices. In just over three months in mid-2008 ticket prices paid by business travelers went up 12 percent, according to the American Express Business Travel Monitor, a service that tracks travel expenses, including published and purchased airfares.

The good news is that the still-escalating economic crisis may force airlines to adjust their survival strategies moving forward. Kevin Mitchell, chairman of the Business Travel Coalition in Radnor, Pa., notes that the mushrooming credit crisis and resulting travel cutbacks at most companies has killed the airlines' ability to push up prices. “In 2008, they hoped to cut capacity 10 percent while raising prices 20 percent,” he says. “The problem is, very few people are buying at those prices. This means that the recent fare hikes are coming off the table. ...” ...

...As of early October, the airlines showed no signs of ending the a la carte menu of ancillary fees for things such as checked luggage. ...

In addition, airlines have declared their intentions to cut seat inventories by another 10 percent in 2009. Even profitable Southwest has said it will cut 196 flights from its schedule, a 6 percent reduction. Some destinations will be more hard-hit than others. “With the route decisions I've seen lately, there is a disproportionate amount of capacity coming out of destinations where the major airlines compete with the low-fare carriers,” Mitchell says. ...

One trend that may help: While air costs are going up, some hotel costs are starting to go down. ...