airlines increased fares for rising crude oil prices

crude oil prices rise past $100 a barrel for the first time since 2008 has the industry recalculating financial flight plans that were based on forecasts of oil at $85-$95.

American Airlines, United-Continental Airlines and Frontier Airlines this month revised downward their 2011 capacity growth plans as crude oil traded above $100 per barrel. The carriers follow Delta Air Lines, which in early February was the first major U.S. airline to curtail 2011 growth plans. Analysts expect further cuts unless fuel costs abate. Southwest Airlines this past weekend "pushed the entirety of its domestic fare structure higher by $5 one-way, marking its fifth broad-based increase since early December."

It’s also a financial challenger for passengers, since the fuel costs are passed on to them as higher fares and more fees.
Advito, a travel consulting firm, forecasts international fares will jump 9 percent on economy seats and 8 percent in business class in 2011 compared to a year ago. U.S. domestic fares are forecast to go up 8 percent on economy seats and 5 percent for business class, according to Advito.

Though US Airways has yet to join its largest competitors in adjusting capacity, CFO Derek Kerr during the carrier's fourth-quarter earnings call in late January noted that "as we move into the fall schedule, we would much more likely reduce capacity." US Airways expects 2011 mainline capacity to grow 2 percent from last year.

Airlines hedge against volatile fuel prices partly by trading oil futures contracts. By locking in future prices on barrels of oil, they gain some control over their costs for fuel, since oil and fuel prices move similarly. While hedging allows for more accurate budgeting, it’s a gamble that the airlines win only if they bet correctly on oil prices months ahead of time.

United Continental Holdings – parent company of the merged Continental and United – has hedged about 40 percent of its planned 2011 fuel consumption.

Southwest Airlines has hedges in place to protect its fuel costs against oil prices above $105 a barrel.
U.S. airlines raised fares at least $10 per round trip last week, the sixth attempt to bump fares since the start of this year, reported Rick Seaney, CEO of FareCompare.com. Some attempts to raise overall fares fail if an airline tests an increase and its competitors don’t follow suit.
Swierenga said higher fares might affect business travel somewhat, but are more likely to cause leisure travelers to cancel or change their flying plans.

“Maybe instead of going to Hawaii you might think about going to Florida,” he said.
Julie Thomte, vice president of consulting for Advito, the travel consultant, agreed that businesses will continue to send their employees on trips to generate more company revenue.