Airfare Hike Roll Back Hints at Weakening Demand

U.S. airlines rolled back much of their recent systemwide fare increases on Monday in a sign that carriers are losing pricing power amid softening demand.

Continental Airlines sparked a broad fare increase last Friday by raising prices $5 each way on all continental U.S. flights. The move was matched by most major airlines, but not by budget carriers like Southwest Airlines.

American Airlines, a unit of AMR, said it partially rolled back the fare hike.

Northwest Airlines and US Airways Group pulled back their hike entirely, while UAL's United Airlines, Delta Air Lines, and Continental scaled back their increases, according to fare analyst Neil Bainton at Farecompare.com.


"It is likely we will see the other carriers roll back (later) this evening," said Bainton.

The unsuccessful attempt at a fare increase is the latest setback for the long-suffering industry, which has been contending with jet fuel prices that have risen by about one-third over the last four months.

With demand showing signs of softening and competition intense, the U.S. carriers appear to have little power to pass the higher costs on to consumers.

"We continue to doubt the effectiveness of subsequent domestic fare increases," said JP Morgan analyst Jamie Baker in a research note.

He said despite 20 fare increases since January 2006, domestic flights cost only about 1% to 2% more than a year ago.

Last year, fare increases along with reduced capacity and lower costs helped the industry claw its way out of a five-year downturn.

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