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Archive for Wednesday, April 23, 2008

Summer travel headaches loom as airlines’ woes deepen

Trinity Maughan, 6, of Peoria, Ill., rests on a bag while waiting in line at O'Hare International Airport in Chicago in this April 9 file photo. For travelers, a vacation season of jammed planes, delayed flights and higher fares looms.

Trinity Maughan, 6, of Peoria, Ill., rests on a bag while waiting in line at O'Hare International Airport in Chicago in this April 9 file photo. For travelers, a vacation season of jammed planes, delayed flights and higher fares looms.

April 23, 2008

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— The airline industry was battered Tuesday by worse-than-expected losses and skyrocketing fuel prices, portending a worst-of-times vacation season of jammed planes, delayed flights and higher fares.

The latest bad news came in a gloomy United Airlines earnings report that sent parent UAL Corp.'s shares down 35 percent and slammed other airline stocks as well. UAL posted a $537 million loss for the first quarter.

Crude oil surged close to the once-unthinkable level of $120 a barrel, and the CEO of Delta Air Lines said domestic carriers would need to raise fares by 15 to 20 percent just to break even.

"It's going to be a rough summer," said Terry Trippler, a Minneapolis-based travel expert. "It's going to be one where you've got to plan another day into your travel schedule" just to prepare for schedule chaos.

Analysts say planes will be fuller and ticket prices significantly higher than in past summers, although just how bad cancellations and delays will be is hard to predict.

Airlines have already tried to raise ticket prices a dozen times across most of their route networks since the start of the year, but most of those attempts were rolled back when competitors refused to join in.

Now, Delta CEO Richard Anderson said higher fares would likely diminish demand for air travel and lead airlines to further reduce their schedules.

Airlines' recent cutbacks and the shutdowns of a handful of smaller carriers will remove some planes from the skies but won't solve congestion, and the threat of weather problems and labor strife is ever-present.

Passengers have already had a taste of the possible pandemonium - massive flight cancellations by American Airlines as the Federal Aviation Administration stepped up its scrutiny of airplane inspections after years of more lenient enforcement.

"It's not like this has come out of the blue," Trippler said. "It's getting progressively worse every year. But most summer air travelers are experienced."

Calyon Securities airline analyst Ray Neidl said carriers will need to continue cutting back on flights and raising prices to cope with higher oil prices. That means the flights that are left should be more crowded.

"We've got too much capacity and prices are too low," he said. "Airlines just can't survive with the current air fares if oil stays this high."

Neidl said he expects airlines will continue to find ways to charge for added services, such as checking extra bags and more legroom.

So far, fliers seem determined to go regardless of ticket markups. Airlines have said their bookings still look strong, given the iffy economic situation. After all, sky-high gasoline costs don't look great by comparison.

"People still have the money and they still want to travel," said Arthur Salus, president of Duluth Travel outside Atlanta. "If someone pays $20, $30, $40 more for a ticket, that's not going to be a deterrent for them if they have to drive more than four to five hours."

Eventually, both the airlines and analysts expect business to drop off as fares keep rising.

Comments

toe 5 years, 11 months ago

One of the worst excesses of the past 30 years has been the movement of mass transportation from the rails and roads to the sky. Massive pollution of the upper atmosphere, massive expenditures for planes, runways, and personnel, while the rail system deteriorated. Europe, for all its problems, realized that rail could not just be abandoned. They even dug a tunnel to England. So, airfares will double in 2 or 3 years, ridership will decline at unprecedented rates, and we will have 60 percent of our current carries go out of business. A right sizing will be painful. The great debate on mass travel will start soon, too.

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