Crude oil prices have dropped by more than $20 a barrel in the past three weeks, but don't expect air fares to decline any time soon.
"Even if oil went down to $110 or $100 a barrel, the airlines have a tremendous amount of costs that they have to recoup," said Terry Trippler, a Minneapolis-based fare expert.
Oil was trading at about $65 a barrel when Northwest Airlines exited bankruptcy in May 2007, and it spiked above $147 a barrel on July 11. Airlines have not raised fares rapidly enough to keep pace with skyrocketing jet fuel prices. U.S. carriers are expected to lose between $5 billion and $10 billion this year despite double-digit or higher percentage fare increases. Now, airlines are sharply cutting seats on the market, which will boost their pricing power.
This week, Northwest "increased a very limited number of our fares" for travel beginning Jan. 10, Northwest spokeswoman Michelle Aguayo-Shannon said Thursday. "This increase is in response to the high price of fuel and matches the increases set by some of our competitors." She said the Twin Cities market was not affected by those increases.
In a spot check Wednesday on 12 routes served by Northwest, the lowest fares offered to Twin Cities summer travelers all were up over a year ago.
With a minimum stay, the lowest round-trip fare to St. Louis was $291 in late July 2007, but was $649 on Wednesday -- a 123 percent jump. However, the lowest fare on the Raleigh/Durham route was up about 20 percent, from $250 to $298.
On tickets that require a passenger to stay at least one night or a Saturday night, fares had at least doubled on three of the 12 routes: St. Louis, Nashville and Baltimore. But several other cities had smaller increases, such as Sacramento, Philadelphia and Detroit.
"Fuel is eating them alive right now," Trippler said. "It's not surprising to see air fares double."
A year ago, he added, many airline executives thought oil prices were high and would decline, so some held off on raising their fares. Now, airlines are playing a game of catch up.
Sticker shock
It's a shock to some leisure travelers.
Northwest, American and other carriers this week increased their fuel surcharges to most European cities to $350 round trip, according to Tom Parsons, CEO of Bestfares.com.
As airlines try to claw their way back to profitability, they are raising more than ticket prices. Delta Air Lines on Tuesday doubled the fee for a second checked bag from $25 to $50. Airlines are raising other fees, such as Northwest boosting its ticket-change fee from $100 to $150.
For people planning to fly to Europe this fall, Parsons reported Thursday that the average airfare will be up by 16 percent. He added that average fares to England have jumped by 31 percent.
In a conference call last week, Northwest executives said the airline's revenue per seat mile was up 6.1 percent during the second quarter and its quarterly fuel bill rose by 41 percent.
During the fourth quarter, Northwest plans to shrink domestic capacity flown by Northwest pilots by 18 to 19 percent. International and regional flying will increase, so Northwest's overall seats on the market will decline by 3 to 4 percent.
Other airlines also are making big cuts.
"We are fairly bullish on what we see for September through December, after we get past the summer," Tim Griffin, Northwest executive vice president of marketing and distribution, told Wall Street analysts in the call.
He said Northwest will benefit from the industry's capacity cuts, and that Northwest's revenue per seat mile will be "up appreciably."
Customers are reacting to higher fares. The volume of corporate travel is down "slightly," but the average fares paid are rising, Griffin said.
As seats are taken off the market, Griffin said, travelers will be competing for fewer seat choices. The airlines will have the opportunity to eliminate their lowest fares.
"What we need is the average fare paid to go up," Griffin said. How fast it does is an open question.
In the first quarter, the average fare paid for domestic flights on U.S. carriers rose 4.4 percent, according to a federal report last week.
Trippler, who owns a discount travel club, said: "Many people are asking, with oil now in the $120s and not in the $140s, when are we going to see air fares come down."
He has an unconventional way of answering. With a smile on his face, he said, "It will be five years after the Vikings win the Super Bowl and the Gophers win the Rose Bowl in the same year."
Liz Fedor • 612-673-7709