Now that we’ve all gotten used to cheaper flights amid low fuel prices over the last few years, it’s time for the the airline industry to do its best to tick everyone off again by sending fare prices upwards once again.
Delta Air Lines is kicking things off by extending its capacity growth of only 1% in the fourth quarter to all of 2017, Bloomberg reports, as Chief Executive Officer Ed Bastian cites “the weakest revenue environment in recent memory.”
Keeping capacity low means higher ticket prices as travelers compete for those limited seats, and other airlines will likely follow Delta’s. And if everyone makes like Delta, maintaining a stranglehold on seat capacity, capacity will only grow about 3% in 2017, the tightest in three years, JPMorgan Chase & Co. analyst Jamie Baker wrote on Thursday in a client note.
Carriers now want to see an increase in what’s known as passenger revenue per available seat mile, wherein one seat mile is one seat flown one mile, which is the standard capacity gauge, Bloomberg explains. Delta’s decision to keep capacity growth low next year will “turn up the heat on American and United to demonstrate similar conviction” to reverse unit revenue declines, Baker wrote.
Higher fares will also help airlines face more expensive fuel, with carriers expecting to pay higher prices next year. Some airlines will also have higher wage costs if labor groups sign off on deals currently in the works: Delta and its pilots recently reached terms for a new four-year contract that involves a 30% raise; and Southwest Airlines pilots are voting on a new agreement with a 29% increase in salary. Southwest and United both reached tentative deals with flight attendants this summer as well.
We’ll likely find out soon if American Airlines and United Airlines will limit capacity next year, as both carriers will report their quarterly results next week.
The Cheap Airfare Party Is About to End [Bloomberg]
by Mary Beth Quirk via Consumerist