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American, Delta Raise Fares to Offset Fuel Costs

Reuters
Friday, 2 Feb 2007 | 12:02 PM ET

Two of the largest U.S. airlines raised fares on Friday, aiming to take advantage of strong travel demand to boost profitability and offset the price of jet fuel, which despite recent declines, remains historically high.

American Airlines, a unit of AMR, and Delta Air Lines , the U.S. No. 1 and No. 3 carriers respectively, said they raised fares $5 each way on most routes.

The move has yet to be matched throughout the industry, but if other airlines follow, it will mark the second successful fare increase this year.

A combination of increased demand and reduced capacity has pushed fares higher over the past 14 months after several years of steady or declining prices.

Airlines are also looking to offset relatively high fuel costs, despite a 15% decline in the price of crude oil since February 2006.

"At this point, fuel is not the clear driving force for increases as it was in 2006," said Neil Bainton of air fare research firm FareCompare. "Instead it is an effort by the airlines to improve profitability under market conditions with strong demand and decreased capacity."

Despite recent declines, airlines say they continue to face big operating expenses.

"We continue to face increased costs, including fuel," a Delta spokeswoman said. The airline initiated the fare increase on Thursday night with a hike of $5 each way systemwide. American matched on Friday.

Delta's November operating report, the most recent it has released, showed jet fuel was the carrier's top expense, followed closely by salaries and related costs.

AMR's quarterly earnings report showed it paid less for fuel in the fourth quarter than it did a year earlier. Jet fuel was AMR's second-largest expense after labor costs.

UAL United Airlines, Continental Airlines and bankrupt Northwest Airlines said they were studying the increase.

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