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Declining Airline Profits Could Mean Higher Fares for Flyers

The International Air Transport Association (IATA), the trade federation of the world’s main airlines, announced a forecast that should hardly be news to anybody: Its mavens predict that fuel prices will remain high for the foreseeable future and, as a result, airline profits will fall by some 60 percent this year.

What IATA didn’t include is the clear corollary that airlines will hike fares and fees to the extent that the market will allow.

Given the high fuel prices, most airlines are caught in a classic squeeze: Their unavoidable costs are increasing, but the marketplace resists price increases. Market pressure comes from both customer resistance and competition from the few lines that are either managing to make a profit even in today’s bad climate or so hard up for cash that they’re willing to sell at a loss.

For travelers, the implications should be pretty clear:

  • You can expect further modest fare increases in regular fares, tempered by those market pressures. Where possible, airlines will try to increase existing fees and add new ones. But you can also expect continuous short-term “sales” offering some really good deals.
    • High fuel prices are especially tough on those small 50-seat regional jets. If you usually fly from an airport where those planes predominate, you can expect some combination of switches to turboprops, lower frequencies in larger jets, and complete loss of low-profit routes.
      • More small airlines will follow the recently departed Direct Air and disappear from the scene. Among U.S. carriers, Vision seems the likeliest candidate, but several others are shaky, and it’s hard to see how the wannabe restart PEOPLExpress will ever be successful. Weaker lines are also dropping out in Asia and Europe.

        So how can you avoid paying lots more for your travels during these tough times? Some advice:

        More than ever, you have to try to buy air tickets during a quick fare sale. That means it’s essential that you sign up for as many fare-alert notifications as possible—certainly ours, and also those available from big airlines and major online travel agencies.

        And, given current market uncertainties, always have some sort of Plan B in the back of your mind when booking with smaller airlines.

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