Low-fare airlines aren’t so low anymore

By Tom Stundza -- Purchasing, 6/25/2008 9:49:00 AM

U.S. air carriers—slammed by soaring fuel costs—are trying to push fares up yet again this year while also adding new fees and restrictions. Jet fuel costs—now up more than 80% over last year—are forcing all the airlines to sharply raise some fares. And with consumer spending off, the low-fare carriers are being forced to reinvent themselves to appeal to not just bargain hunters but also to the briefcase crowd that generally pays more for last-minute tickets. So says a New York Times report, which says airfare bargains are getting harder to find, as low-fare carriers are joining the bigger airlines in raising fares, which are up about 18% industrywide this year.

In the past three reporting months, businesses increased their air travel spending by 12% from a year ago while the number of tickets purchased decreased by 1%, according to a cross sample of more than 80 clients with Ovation Corporate Travel, an independent travel management company in New York.

"The trends we're looking at here for March, April, May actually make a lot of sense considering that recent airfare increases have come hand-in-hand with an overall economic downturn,” says Michael Steiner, Ovation's executive vice president in an interview with the New York Times. “We're seeing our clients' policies tightening around certain criteria such as approvals for trips, class of service, etcetera.”

"Business travel is under rising pressure due to corporate cost control measures and the availability of improved alternatives such as Webcast meetings and conference calls," according to a recent report from research firms Global Insight and D.K. Shifflet. For the second quarter, the firms predicts domestic business travel will drop off by about 0.8%, and then decline an additional 0.4% in the third quarter. The next year, however, looks even more challenging as the slowing economy and the impact of rising fuel prices begin to really take a toll.

Major network carriers have lifted their airfares for the fourteenth time since the beginning of the year. Some travelers now pay $360 more for a roundtrip ticket between certain, non-competitive markets this year compared to 2007, according to data provided by Bestfares.com, a discount travel Web site that tracks airfare changes. “As the price of oil nears the $140 per barrel mark, we don't believe this will be the last airfare hike in the near future,” Tom Parsons, CEO of Bestfares.com tells MarketWatch.com. “The major airlines continue to raise airfares and add new fees and surcharges, doing anything they can for their own survival.”