American joins rivals on fare hikes
Beleaguered American Airlines, still coping with thousands of flight cancellations, said Friday that it would raise fares by as much as $30 on round-trip tickets to help offset rising fuel costs.
The move came the same day American canceled almost 600 more flights as it continued to inspect its MD-80 jetliners for compliance with federal safety rules. The airline hoped to wrap up the work today, ending a week of cancellations. The disruptions are expected to cost it more than $30 million.
Also on Friday, discount carrier Frontier Airlines filed for Chapter 11 Bankruptcy Court protection after its credit card processor began withholding a larger chunk of receipts from ticket sales.
Frontier said it would keep flying, but its bankruptcy filing is another indication of the financial strain affecting the industry and its customers.
Three other U.S. airlines filed for bankruptcy in the last month and ceased operations.
Oil prices, safety concerns and a weakening economy have beset airlines for months. At the same time, passengers have been forced to cope with higher fares, more-crowded planes and unexpected chaos in the nation’s airports.
“There’s a lot of tension at the airports these days,” said Dean Headley, a professor at Wichita State University in Wichita, Kan., and co-author of the annual Airline Quality Rating. “You sense something between panic, terror and frustration.”
American is the last major carrier to match fare hikes by rivals United Airlines and Southwest Airlines, meaning the price increases are likely to stick. Although it comes at a touchy time for American, which scrubbed more than 3,000 flights this week because of the safety inspections, one fare expert downplayed the effect on the embattled carrier’s image with travelers.
“They’ve had so much bad press over the last 72 hours that this is just a pimple,” said Tom Parsons, chief executive of Bestfares.com. “They can deal with this.”
Passengers at Los Angeles International Airport on Friday confirmed that view.
“I don’t think it’s a very good PR move,” said Mercedes Arner, 42, a product analyst from Chicago.
But Arner, whose flight home on American was canceled Thursday morning, said she understood the move. “It’s part of doing business,” she said, adding that the increase wouldn’t cause her to fly less. “I’m going to be on a flight Monday morning for work. On American, actually.”
The airline industry is being hit with a double whammy of escalating fuel costs and a slumping U.S. economy, which threatens to crimp air travel, especially by high-dollar business fliers. The price of jet fuel has climbed 76% during the last year, hitting a record $3.69 a gallon this week.
In the fourth quarter of 2007, fuel displaced labor as American’s single biggest operating expense. Last year, the carrier spent $6.7 billion on fuel -- at an average price of $2.12 a gallon -- compared with $2.7 billion in 2003, when jet fuel was 88 cents a gallon.
“It’s a difficult decision to make, but fuel costs are so burdensome right now that we feel we need to match these increases to mitigate that,” American spokesman Tim Wagner said.
Airlines have now raised fares or imposed fuel surcharges seven times since mid-December, Parsons said. Travelers in smaller markets not served by discount airlines have been especially hard hit, he said.
Even so, the recent fare hikes “are just a band-aid,” said Vicki Bryan, an airline analyst with the credit rating firm Gimme Credit. Ray Neidl, an analyst with Calyon Securities, said “the fare increases aren’t coming close to matching the fuel price increases.”
Wall Street’s bleak view is reflected in airline stocks, which have lost three-quarters of their value since early last year, based on an index of airline shares.
Bryan said spiraling fuel prices could lead to more bankruptcies and consolidation in the industry. Regional carrier ExpressJet and recent start-up Virgin America, both of which serve Southern California, are seen as somewhat vulnerable to rising fuel costs.
Delta Air Lines and Northwest Airlines are reportedly close to a tie-up, and Continental Airlines is said to be looking for a partner as well.
“Those mergers would bring some stability to the industry,” she said. “But the public will suffer because they’ll lose some routes. People are either going to have to accept higher prices or fewer flights.”
Or both. The airlines cut capacity by 4% last year even as demand rose by about the same amount, said Headley of Wichita State. Fewer flights means more-crowded planes, and airlines are routinely filling 80% or more of their seats. That’s one reason why American had a hard time accommodating passengers displaced by this week’s cancellations.
“When you dump 150 people out of a canceled flight, for whatever reason, it could take 24 to 48 hours for enough capacity to open up to let those 150 people get to their destinations,” he said.
The latest edition of Headley’s survey, released this week, gave the airlines the lowest rating in the 18-year history of the study, which measures such customer-service issues as lost baggage, denied boardings and on-time arrivals.
The sudden crackdown by the Federal Aviation Administration has added a new dollop of uncertainty to the mix. American grounded all 300 of its MD-80s -- the workhorse of its domestic fleet -- after the FAA determined that the carrier was not in precise compliance with an agency directive regarding a potentially dangerous problem with wiring bundles in aircraft wheel wells.
Through Friday, American had canceled more than 3,000 flights and disrupted travel for more than 250,000 people. Midwest Airlines and Alaska Airlines also grounded a small number of MD-80s for maintenance checks.
The FAA’s current audit of airline maintenance practices runs through June, and experts worry that more groundings could occur.
American said it would cancel 200 flights today -- three at LAX -- as it completed inspections and repairs on its MD-80s. It hopes to resume normal operations Sunday.
The airline said customers should go to its website at www.aa.com for the status of flights and for information on re-booking and compensation, which could include travel vouchers and reimbursements -- some up to $500 -- for meals and lodging for stranded passengers.
In the last three weeks, Skybus Airlines, ATA Airlines and Aloha Airlines ceased operations after filing for bankruptcy. High fuel prices, among other factors, were blamed for the failures.
Frontier, which flies to 70 destinations from Denver, serves LAX and John Wayne Airport in Orange County. It has accounted for less than 1% of passenger boardings at LAX this year.
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Times staff writer Andrea Chang contributed to this report.
