High Fuel Costs Are Squeezing Low Air Fares
For years, Southwest Airlines and JetBlue operated under self-imposed fare caps, promising travelers that no ticket would cost more than $299 one way.
Those were the days. Want to fly from Boston to Long Beach, Calif.? On JetBlue, it will now cost as much as $599 each way. A one-way ticket on Southwest from Manchester, N.H., to Ontario, Calif., can be $414.
The low-fare airlines aren’t so low anymore. Jet fuel costs — up more than 80 percent over last year — are forcing the airlines to sharply raise some fares, and reinvent themselves to appeal to not just bargain hunters, but also the briefcase crowd that generally pays more for last-minute tickets. No longer does Southwest’s slogan promise, “You are now free to move about the country.”
“The reality is that fares must go up,” said Davis S. Ridley, Southwest’s senior vice president for marketing and revenue management. “The arithmetic doesn’t work if we transport five people across the country at $99 each way.”
Airlines like Southwest, JetBlue and AirTran have been able to offer cheap fares for years because of their lower operating costs, for reasons that include simpler jet fleets, work rules and less-sprawling route networks. Their low prices and rapid growth forced the largest carriers to cut fares whenever they entered a market.
They still offer deals for passengers who book trips well in advance, travel off-season and at less popular times. But in general, bargains are getting harder to find, as low-fare carriers join the bigger airlines in raising fares, which are up about 18 percent industrywide this year.
About half a dozen smaller carriers, including Denver-based Frontier, have also gone out of business or entered bankruptcy this year, in part because of high fuel costs.
Industry experts say the dividing line between the low-fare airlines and the largest carriers is blurring. “You don’t have the gigantic gulf of difference you had earlier this decade,” said Philip A. Baggaley, a senior credit analyst with Standard & Poor’s Rating Services.
Southwest says it is trying to set itself apart on the issue of fees, if not fares. Major airlines are piling on new fees, like the $15 charge that AMR's American Airlines , UAL's United Airlines and US Airways charge some passengers to check a bag.
Southwest still allows passengers to bring two free bags, and its marketing slogan is now “Freedom from fees.” Mr. Ridley, the Southwest executive, calls the fees other carriers are charging “airline heroin” because of the dangerous addiction they can become for raising revenue.
The sales pitch resonates with some travelers. David Willenborg, a sales manager for a food manufacturer from Plano, Tex., said Thursday that Southwest’s lack of fees helps save his company money on top of the lower fares it offers for many routes that he flies regularly.
He paid $415 round trip to Detroit this week, about 30 percent more than in the past, but he was able to check his suitcase and golf clubs free. On American, the round-trip fare would have been more than $1,000, he said, plus $40 for the bags.
But Southwest is trying other means to generate extra revenue beyond raising fares. Despite its new slogan, it now offers a service that it calls Business Select. For a fee of $15, $20 or $25, depending on the length of flight and the fare, passengers get a cocktail, an extra credit on their frequent-flier program, and the right to board with the first group of passengers (Southwest does not offer assigned seats).
Dave Anthes, an oil company salesman from Chesterfield, Mo., said he was willing to pay the extra money to ensure his choice of a seat on crowded flights. The priority boarding system, he said, is perfect for business travelers who do not have time to arrive early. “You used to have to get here two hours ahead of time and stand in line,” said Mr. Anthes, who was interviewed at the Detroit Metropolitan airport.
JetBlue and AirTran, which joined the big airlines in adding a fee for a second bag, but not the first, say they are trying to strike a balance. “Low-fare carriers are not immune from oil prices,” said Robert L. Fornaro, AirTran’s chief executive. “We’ve had to recapture the price of oil. The question is, ‘How do you get there, fares or fees?’ We think it’s better to do both.”
AirTran, which has offered business class on its planes since 1998, provides seat assignments on its top-priced fares at no charge, but charges $6 to select a seat for passengers flying on discounted coach tickets (it costs $20 to reserve an exit-row seat.)
JetBlue has changed one of its original policies to be more attractive to business travelers. Before this year, it did not offer refunds to passengers whose plans changed. But in January, JetBlue introduced refundable fares, which the airline says generally cost $50 to $100 more each way than its nonrefundable tickets.
Refundable tickets are marketed mostly to corporate customers. JetBlue recently joined four large reservation networks, a unique step for a low-fare airline.
“Business customers like options,” said David Barger, JetBlue’s chief executive. “They’ll pay more for a premium seat in a coach cabin.”
The option has been a boon to Skip Pleninger, vice president of Paris-Kirwan, an insurance company in Rochester. “I need to be able to switch my flights last-minute," he said. For example, two of his meetings in New York City were canceled last week.
Mr. Pleninger paid for that flexibility. If he books ahead, his fares generally are around $154; his fare for the trip this week was nearly $350.
Mr. Barger said his airline was trying to maintain its thrifty image while coping with the “new normal” created by high fuel prices. “You can’t bust the brand. People still need to know they’re going to get value pricing,” he said. “But we’re asking the traveling public to participate by buying higher fares.”