Airlines roll back recent airfare increases

Delta Air Lines (DAL) initiated the increase Monday on its premier class and last-minute fares, with increases up to $120 for a round-trip ticket. Other large network airlines subsequently matched it by raising prices on first-class, business-class and seven-day advance-purchase tickets that can cost as much as $900 for a domestic round trip.

After initially matching Delta's move, US Airways (LCC)changed its mind and canceled the increase Wednesday. Others — Delta, American Airlines (AMR),United Airlines(UAL) and Continental Airlines — followed suit, according to Rick Seaney, CEO of FareCompare.com, which closely monitors fares.

"I thought (Delta's hike) was overzealous," he says. "They're probing customers. They're also probing the appetites of other airlines. I guarantee you we'll see more probing in the coming days."

Airlines closely monitor each other's fares and frequently match any price movements, lest they lose sales to a cheaper competitor. Their attempts to raise fares often fail if competitors don't match them.

With the economy improving and corporate travel departments enlarging their budgets, airlines are emboldened to charge higher fares even as they keep their seating capacity in check.

The network airlines' most recent attempt to raise business travel fares was their second in as many weeks. They've also raised fares more broadly — affecting most of their seats and leisure travelers — five times since December.

But the airlines' failure this week may be a sign of the tentative pace of the recovery of business travel, which sank along with the economy in 2008.

As airlines raised fares for most of their routes, Southwest Airlines (LUV) didn't match in two of the rounds, Seaney notes.

"If Southwest doesn't participate," Seaney says, "(other airlines) tend to tiptoe around those (routes) to make sure they're at equilibrium with Southwest."

Airlines argue that rising fuel prices dictate higher fares.

Jamie Baker, a JPMorgan Chase airline analyst, told the Associated Press that if fares don't rise further, airlines will need lower fuel prices or will have to cut flights and seating capacity to boost their earnings.

Source: USA Today