Airlines flying high on fees, fares, fuller planes

Airfares have ascended steadily upward in recent months and are close to prerecession levels, and that's not counting all the fees airlines have introduced lately.

The increase in fares is the result of a remarkable discipline shown by the airlines, which have generally not added more flights this year even as the economy has improved and demand has picked up. For the airlines, flying fewer and fuller planes has paid off.

Passengers are paying the price. For leisure travelers, domestic fares have increased by more than 20 percent in the second quarter compared with a year earlier, according to data compiled by the travel website Orbitz. On international routes, the climb has been steeper, with fares 30 percent higher than last year. For business travelers, ticket prices increased by 12 percent in the first half of the year.

The price of round-trip coach tickets for a flight between Chicago and Atlanta, for instance, was about $250 this summer, a $50 increase over last year. A round-trip ticket from New York to Paris, which sold for less than $700 last year, cost more than $1,000 this summer.

As the end of summer approaches, experts said they did not expect bargain fares to return soon. While they expect price increases to moderate in coming months when travel traditionally slows, travelers should brace for more increases for the year-end holidays.

"My advice now is don't procrastinate if you're planning to travel over the holidays," said Rick Seaney, chief executive of FareCompare.com, a travel website.

The rise in fares can seem especially steep because it follows a low point for the industry. As the economy contracted last year, consumers cut down on spending and air travel collapsed, pushing prices down to their lowest levels in a decade.

Those low fares put immense pressure on the airlines, already struggling with high energy prices.

Airline executives have since been preaching the need to reduce the number of seats they offer, either through cuts or consolidation. That thinking led to the merger plans between United Airlines and Continental Airlines. The carriers recently received government approval for the deal, and the merger is expected to be completed Oct. 1.

"Airlines are continuing to show voluntary capacity discipline for the first time not just this decade, but really since the industry was deregulated in 1978," said Hunter Keay, an airline analyst at the firm Stifel Nicolaus.

The health of the economy remains the wild card in the industry's efforts to improve revenue. If the economy takes a turn for the worse, fewer people will be flying, which, in turn, would push down prices.

In the meantime, airlines have seen some marked improvements in their bottom line.

The average yield — or the price paid by one passenger to fly one mile — was 14.95 cents in July, the second-highest price for that month in the past decade, according to data compiled by the Air Transport Association. (The peak for July was 15.56 cents in 2008.)

Passenger revenue rose by 20 percent, marking the seventh straight month of revenue growth, the industry trade group said in its latest monthly report.

Travelers such as Damon Myers have noticed the higher prices. "It's difficult to get a cheap ticket these days," said Myers, a technology consultant from New York. "Fares are going up. And on most flights now you'll hear the announcement, 'We've got a packed flight today.' "

Airline officials declined to comment about pricing, citing antitrust concerns. But one executive said that while the airlines have not been able to impose fare increases across the board this year, they have been able to capitalize on the return of business travelers. With more of those higher-paying customers, the airlines were able to reduce the number of cheap seats available, raising their overall revenue per flight.

At the same time, the airlines have raised an array of fees and other extra charges.

"Everything that you can charge a fee for in the process of flying, there now is a fee for," Seaney said. "Airlines have been wanting to do this for years."

The cornucopia of new fees can feel maddeningly complicated. Most airlines charge for food or drinks, checked bags or flying on standby, although some fees are waived for members of an airline's frequent-flier club. Changing tickets costs $50 to $250. JetBlue sells a "sleep set" containing a pillow and a blanket for $7; Continental charges $20 to provide a receipt if the request is made more than seven days after a flight.

In the past two months, American Airlines has found a variety of new services worthy of a fee. For $9, passengers can be among the first to board a flight, a perk these days as travelers bring more bags on board than will fit in overhead compartments.

For $25 or $49, passengers can double or triple the number of miles they earn on a flight.

And for fees ranging from $19 to $39, American allows passengers to book seats in one of the first two rows of seats in the coach cabin. These "express exit" seats allow passengers to be among the first to board and get out.

"Airlines are getting increasingly creative in charging for items they once provided for free," said Jami Counter, the senior director of TripAdvisor Flights, a web flight-search tool.

As fees have multiplied, airlines' fortunes have improved. Four of the top five established airlines turned a profit in the second quarter this year.

In July, Delta Air Lines, the nation's top carrier, reported its biggest quarterly profit in a decade, $467 million for the second quarter. Its revenue from passengers, which includes higher ticket prices and more revenue from fees, jumped 19 percent. It filled 85 percent of all its seats in that period, a much higher figure than the industry is used to.

"The industry's operational performance has significantly improved," said William Swelbar, a researcher at the International Center for Air Transportation at MIT.

But he said it won't be easy to hold onto those gains if the economy slows down.

"As much as I want to believe that a secular trend of profitability is under way, I am not so sure this is all behind us, given the fragility of this recovery," he said.