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Tuesday, February 12, 2002

Air fares rebound along with demand


Some routes higher than before attacks

By James Pilcher
The Cincinnati Enquirer

        Major airlines, including locally dominant Delta, cut fares early last fall to lows not seen in at least a decade. The goal: Draw back passengers after the Sept. 11 attacks.

        But a review of current air fares from Cincinnati shows that trend may be ending.

        Air fares to eight popular destinations are higher than they were in August, before the attacks that left the airline industry reeling, according to the reservation computer at Victoria Travel in Hyde Park. The higher fares include new taxes and security fees, compared with base fares only for last year's fares.

        Of fares based on a 14-day advance purchase with a Saturday night stay, only San Francisco and Phoenix are less expensive than they were before the attacks.

        The other leisure fares are close to what they were seven months ago, when airlines had already started cutting prices as the nation's economy worsened.

        Yet there's an even bigger spread in previous prices and current fares for business class tickets, or those with a 14-day advance purchase and a one-night stay that is not a Saturday.

        “Pretty much all of the bargains are gone,” said Tom Parsons, chief executive officer of the travel Web site www.bestfares.com. “The demand is coming back, especially on the leisure side, and that's driving this.”

        Said Wall Street analyst Ray Neidl: “Book your travel now, if you want to save money. Prices will stay lower than normal for a while, but may start getting back to normal starting after the middle of year.”

        Experts say this only makes sense. Airlines cut prices after the attacks just to get passengers back on planes to make everyone feel safe about flying again. In December, airlines as a whole posted the lowest fares since August 1992, and the lowest fares for a December since 1986, according to their trade group, the Air Transport Association.

        But traffic is returning to somewhat normal levels — Delta was down only 9.8 percent for January compared with last year, although it cut its capacity by 12.1 percent.

        And experts say that means prices are coming back up as well.

        Carriers think they can raise prices in order to recoup some of the massive losses incurred over the last few months — Delta alone lost $486 million for fourth quarter 2001,and more than $1 billion for all of last year.

        Yet many industry officials say airlines need to be careful about how quickly they raise prices for fear they alienate already sensitive customers.

        “That's a concern,” said David Swierenga, the transport association's chief economist. “Prices have moved off the rock-bottom levels that were in place immediately after Sept. 11, but they are still dramatically below where they were a year before. So to say they are moving up is a relative term in this case.”

        Mr. Swierenga said that his projections, based on models created after a similar slump caused by the Gulf War, called for fares to return somewhat to normal in the second half of this year.

        Individual airlines, including Delta, would not comment about future air fares. Delta, along with regional subsidiary Comair, controls about 93 percent of the traffic locally at the Cincinnati/Northern Kentucky International Airport — its second-largest hub.

        “Of course we will always be competitive,” is all Delta spokeswoman Peggy Estes would say.

        One recent wrinkle is a fare sale by United Airlines, which cut some ticket prices by as much as 50 percent. Delta has matched or come close to matching some of those fares on the 10 cities surveyed.

        “You're still going to pay more out of here because we're a hub and you pay for the direct connection,” said Vicky Mary, owner of Victoria Travel. Some prices are below United, however.

        Another issue that is in flux is how much companies with corporate accounts at the airlines pay for tickets. Last week, Northwest and United both said they were negotiating to reduce the amount of discounts corporate customers receive. Delta would not comment on whether it is considering a similar move. A spokeswoman for Procter & Gamble, the airline's largest local customer, also would not comment.

        But some customers haven't noticed much difference one way or the other.

        “I'm still paying about $2,400 a month,” said Lee Buzalek, who commutes weekly from his home in southeastern Pennsylvania to his job at Mason-based Brandywine Computer Systems. “The prices did go down after September 11, but the airlines have really found a way to keep the total cost the same.”

        There may be some positives out of a slow return to normal fares. Some experts believe that airlines must simplify fare structures — which might have 19 different prices for a single flight — to survive.

        “It's like buying a car: You know you don't want to pay list, but you never know if you've got the lowest price,” Mr. Buzalek said.

        Don Carty — the chairman, president and chief executive officer of AMR Corp., the parent company of American Airlines — is one executive pushing for simpler air fare systems. Although Mr. Swierenga of the airline trade group says there will always be some discount pricing.

        “You'll still see what the airlines call "yield management' out there, but that's based on historical models that are out of date given what has happened,” said Mr. Neidl, airline analyst with the Wall Street firm ABN Amro. “But hopefully it will be simplified. The airlines put through six price increases in 2000, and they've got to get business and leisure fares closer together.”

       



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