Monday, May 2, 2011

Fares, Fees, and Consolidation

These last few weeks have been eventful, but I haven't had inspiration for anything to say.  Today, though, three things happened that I decided needed to be given at least a brief mention:
  1. Osama bin Laden was killed.  This has nothing to do with travel.  People seemed to think it would, though: oil prices dropped by about $2 in the early morning, and airline stocks surged higher.  Then the airline stocks stalled, and oil surged back to where it had been.

    Travellers like us need to be clear: no gimmick or feel-good event is going to change the course of oil.  High prices are being driven higher by a degree of legitimate supply-and-demand anticipation, a whole lot of speculation underwritten by free Federal Reserve loans, and a weak dollar.  Higher fuel prices are going to be the norm for a long time.

    As for security, don't imagine that one terrorist killed diminishes the threat of terrorism.  We always need to be aware of our surroundings, especially when traveling.

  2. Southwest bought AirTran.  The deal was announced months ago, but today is the day that the merger became official.  This is big news because it enshrines Southwest as the biggest discounter probably for years to come, and gives the combined carrier a presence in ultra-busy Atlanta -- the centerpiece of Delta's East Coast network.

    Southwest has much lower labor costs than other big airlines.  Whatever else happens in the industry -- bag fees, attempted fare hikes -- it's always there to act as a spoiler.  Now, it's bigger, and as it consolidates its operations with AirTran, you can expect more downward pressure on the other carriers in terms of ticket prices for domestic routes.  Even now, we're waiting to see if Southwest will go along with the United-Continental fare hike attempted on Friday.

    The airlines face enormous cost pressure because of fuel (see #1).  If they can't pass that along because of competition with Southwest, we're likely to see a return to losses.  We might also see further consolidation, though the only tie-up that seems likely would be a U.S. Airways-American deal down the road.

  3. Europe got more expensive.  I mentioned fuel surcharges in my last post, but since March, these have really gone through the roof.  As CNN Money reports, fuel surcharges for international routes are now 25% higher than they were in 2008 -- when oil was trading at $144/barrel instead of the current $114.

    The reason is simple enough: airlines lost so much money in 2007-2008 that they didn't have any cash to lock in low fuel prices during the Great Recession, so they have to buy a lot of their fuel on the spot market.  That means most of their fuel is actually priced off of the $114 figure, where before it wasn't. 

    Domestically, airlines can only do so much to combat fuel prices due to competition (see #2).  Internationally, there aren't as many low-cost carriers, and there aren't any to and from the United States.  Surcharges and fees can add as much as $500 (!) to the cost of an international airfare to, say, Paris.

Keep looking for the low fares at sites like Kayak and Vayama.  Do your research with a site like Orbitz, where you can put together itineraries that favor particular alliances as well as airlines.  Do your booking directly with the airline whenever possible, though, because they guarantee the lowest fares.

And remember, travel isn't just about flying.  Those big cruise ships take as much fuel to move with or without a particular cabin filled, and trains don't use nearly as much energy to get around as cars do.  High airfares just give you a chance to try new things.

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