Airlines Forced To Roll Back Price Hike Because Not Everyone Joined In

When it comes to airline price hikes, it’s all for one or none at all. Last week it seemed Delta Air Lines would get away with an increase of $10 to $20 on last-minute domestic roundtrips, because American, United and US Airways all joined in. This time, however, it appears they’ve been thwarted.

The Chicago Tribune says Southwest/AirTran and Jet Blue didn’t join in hiking up prices, which means the other airlines that had started to hitch fares had to begin partial rollbacks on Thursday and Friday.

“Domestic airfare hikes have had historical difficulty weathering a lack of low-cost airline support,” said Rick Seaney, CEO of FareCompare.com in an alert Friday afternoon. “It is rare for partial rollbacks to not end up being completely rolled back — so this hike attempt is likely to collapse completely by the end of the weekend.”

In the price-hike game, one carrier will shuffle its prices up and hope that the others follow where they’ve led. If not, then the initial hiker, Delta in this case, has to drop back its prices.

This was the the sixth attempt to hike prices this year, but only three have been successful so far and adopted across the board by all airlines. The companies have been trying to deal with the rising cost of fuel.

“Airlines’ limited success in raising base ticket prices in a tough fuel-cost environment underscores how sensitive consumers — even corporate and last-minute travelers — can be to price,” Seaney said.

Airlines roll back latest fare hikes [Chicago Tribune]

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  1. Orrie says:

    Isn’t this the exact opposite of the way prices in a healthy, competitive market are supposed to work? If your competition raises prices, it should be advantageous for you to maintain your original, lower prices to steal their business. It should NOT be common practice to play “follow-the-leader” with “If he can get away with charging that much, then so can I!”

    Yes, I realize that this is exactly what the “budget” airlines are doing, enforcing competition, but why does it take a “budget” segment of the industry to make the big players compete, especially with the very limited selection of destinations served by those smaller carriers?

    • Vox Republica says:

      Airlines are a very unique industry. Unlike many consumer goods and services, they see experience substantially lower price elasticity: few people buy airfares on impulse when prices get low enough, because of the ancillary costs for traveling; business travelers are statistically less likely to defer travel simply because the price per ticket has gone up. So, generally speaking, there isn’t as great a disincentive to raise prices as an industry: if everybody plays ball, they won’t see quite the effects on demand.

      The miscalculation in the instant case is the (mistaken) belief by Delta et al. that bargain carriers would go along with the price increase and focus on increasing profit margins on constant demand instead of staying pat and being price competitive, thus seeing increased demand with thinner margins and increasing returns in that way.

    • Loias supports harsher punishments against corporations says:

      Healthy, competitive market. Airlines.

      Notice how I put those in two separate sentences?

    • TuxthePenguin says:

      You’re describing the difference between a competitive market (perfect competition) and a oligopoly. And if you read about price-wars in an oligopolistic market, it describes what was written perfectly.

    • Gregory Varnadoe says:

      Its not necessarily advantageous if a company’s prices are too low (to them at least) due to competition. If a competitor raises their prices, you can justify raising your prices and call it “cost of doing business”.

      Personally, I think part of the problem is all airlines are trying to compete for all fliers. If an airline charged higher prices on, for example a “luxury class” flight, they might be able to get enough passengers to pay for it.

    • aerodawg says:

      No. Contrary to what most people believe, markets work both ways, it’s all in what the market will bear. If it will bear a higher price, then the price will rise, if it won’t then the price will fall.

      The airlines tried an experiment to see if the market would bear a higher price and it did not so the price has gone back down.

      If you’re selling widgets on one side of the street and your competitor is selling them on the other side of the street and he’s doing just as much business as you are despite prices that are 15% higher, are you going to leave that money sitting on the table? Of course not, you’re going to raise your prices. Now maybe he can get that 15% because he’s in a slightly more convenient location or has a more established brand or whatever but there is certainly incentive for you to try to raise prices.

  2. Loias supports harsher punishments against corporations says:

    Glad I waited to buy a ticket.

  3. dolemite says:

    So…Apple gets everyone to agree on pricing on ebooks and it’s collusion, but that’s the way Airlines are set up?

    • Loias supports harsher punishments against corporations says:

      No, not at all.

      One airline decides to raise prices. Other airlines CHOOSE to raise their prices in step or not. If every carrier does not raise their prices, then the ones that did are seen as less competitive and more expensive. They could, if they chose, to keep those higher rates, but then every other airline would have fodder to declare their competitor more expensive, and they would be right. In such a competitive environment, it’s all or nothing with rates increases.

      If you want to look at it at the price collusion standpoint, you could also say that the airlines not raising their rates are colluding against those that are. So it’s collusion that’s a win for consumers.

  4. Blueskylaw says:

    I truly believed that if airlines charged an out the door price with one suitcase and if they would also get rid of the convoluted system they created to confuse and confound people trying to compare fares then they would actually be able to charge a higher price due to all of the stress being relieved from the ticket buying pricess.

    • CharlesFarley says:

      If you can get the travel websites to ask them to present their pricing as “out the door” and then it will happen. The airlines will conform to whatever tactic gets them to the top of the search results.

  5. SavijMuhdrox says:

    “We’re Going Streaking!!!! Who’s With Me?!?! Alright, Let’s Go!!!!”

  6. C. Ogle says:

    Don’t be fooled. They raised prices someplace else not immediately visible to make up for it.

  7. esc27 says:

    So, what new/ridiculous fees will they use instead?

  8. Fubish says: I don't know anything about it, but it seems to me... says:

    Heh. I though AirTran was a Vietnamese airline.

  9. NeverLetMeDown says:

    Further evidence of just how awful a business airlines are. Next time you fly, remember to send a thank you card to the shareholders of the airline you choose – they’re subsidizing your trip (if not today, then very soon). Only models that have actually been shown to work are Southwest’s hyperstandardized, low-cost approach, avoiding anything resembling high cost (including, in most cases, close-in airports), or the Ryanair/Spirit/easyjet “everything’s extra, including _not_ getting punched in the crotch” approach.

    • Fubish says: I don't know anything about it, but it seems to me... says:

      “everything’s extra, including _not_ getting punched in the crotch”

      Not the airline’s responsibility. The TSA takes care of that for you.

  10. sufreak says:

    How is this not attempted collusion?

    • DerangedKitsune says:

      No proof of negotiation or agreement prior to action being taken. Sure, the CEOs of all the airlines could have had a nice get together / conference call in which this was discussed and agreed to, but unless records of the meeting are available, it can’t be proven to have taken place, thus no collusion. All you’d need in that situation is agreement on implementing the hike, then a choise for who goes first. Everyone else then would say “We’re just following the leader” and be in the clear, as long as there’s no documentation of the course of action they selected. The word of a CEO is about as good as a politician’s nowadays.

  11. Jawaka says:

    I don’t know if this can be done but..

    Would an airline be able to set their own price for travel minus the cost of fuel?

    The fuel would be added to the cost of the ticket as a separate fee based upon whatever the current cost of jet fuel is at the time of the ticket being sold?

    I use my vehicle for my job and get reimbursement based upon a figure set by the IRS which is based upon among other things, the cost of gasoline. Why couldn’t airlines do this as well?