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Airfares expected to keep rising

Mideast turmoil weighs on carriers

By Katie Johnston Chase
Globe Staff / February 25, 2011

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As oil prices climb, so does airfare.

Airlines, struggling to keep up with skyrocketing fuel costs, have raised domestic ticket prices five times since the beginning of the year. That’s one more increase than was issued in all of last year and two more than in 2009, according to the travel website FareCompare.com. The hikes, which range from $4 to $10 apiece round-trip, have bumped up round-trip domestic airfare $25 to $60.

Prices are expected to keep inching up as unrest in the Middle East continues to push fuel costs higher and airlines keep capacity low. The increase comes at a time when airlines are slowly recovering from a travel slowdown: At current prices, fuel accounts for about 35 percent of an airline’s cost, said Robert Herbst, of AirlineFinancials.com, up from about 30 percent last year.

“If the price of oil stayed where it is, roughly $100 per barrel, the airlines would have to raise revenues 9.8 percent to break even for the year,’’ Herbst said.

Often, legacy airlines are the ones introducing price hikes, but this year low-cost carrier Southwest Airlines has led the way several times. Southwest has initiated two of the four fare increases it implemented this year, including a $10 round-trip bump last Friday.

“We’re very cognizant and protective of our low-fare brand,’’ said spokesman Chris Main. “It’s certainly not a shift away from that by any means. It’s just a direct result of what we’re seeing with fuel prices.’’

Rival JetBlue Airways, the largest carrier at Logan International Airport, has pushed through seven price increases this year, including a $90 round-trip fuel surcharge in several Caribbean markets.

“JetBlue takes into consideration demand, competition, and other influences including fuel,’’ said JetBlue spokesman Mateo Lleras.

But legacy carriers haven’t stayed on the sidelines. On Wednesday, United Airlines announced a $20 round-trip fuel surcharge on domestic flights, a move that was matched by other carriers. Earlier this week, airlines raised fares $20 to $60 round-trip on some premium and last-minute fares.

Legacy carriers have also added $20 to $60 peak-travel surcharges on summer departures.

Price increases have also come in the form of added fees. US Airways just raised its overweight and oversize bag fees and now charges $175 — a $75 jump — for a bag weighing 71 to 100 pounds.

“Even if fuel stayed the way it is today, I still think the airlines are going to nickel and dime us with $10, $20 fare hikes,’’ said Tom Parsons, chief executive of BestFares.com.

Overall, airfare rose more than 10 percent nationwide from the third quarter of 2009 to the same period in 2010, according to the Department of Transportation. In addition to fuel prices, airline consolidation, limited capacity, and rising demand contributed to rising fares.

“Fare increases happen on a regular basis, but they don’t always stick if other airlines don’t match,’’ said Anne Banas, of SmarterTravel.com. “However, the fare increases since December have been sticking, and that’s a tell-tale sign that the airlines are looking for more revenue.’’

Analysts foresee prices rising another 10 to 15 percent this year just to keep up with oil prices. The price of jet fuel was $2.94 a gallon yesterday, up 12 percent in the past month. The price of oil settled at 97.28 a barrel on the New York Mercantile Exchange yesterday, down 82 cents from Wednesday’s closing price, which was the highest since the fall of 2008.

But it’s not just the price of oil that’s gone up. The relative cost of refining crude into jet fuel, said MIT aviation researcher William Swelbar, has also jumped. High demand for home heating oil this year, derived from the same part of as crude oil jet fuel, also drives up the price.

“If it’s an abnormally cold winter, the price of jet fuel can go up,’’ Swelbar said.

After taking a hit during the recession, airlines are coming off a banner year, with 13 consecutive months of revenue growth, according to the Air Transport Association, the airline trade organization. And analysts are split about how soaring oil costs — and steadily climbing ticket prices — will affect the industry.

“The recovery is in danger,’’ said Rick Seaney, president of FareCompare.com.

Katie Johnston Chase can be reached at johnstonchase @globe.com.