Airfares On the Rise as Airlines Cut Capacity

As fuel prices increase and business travel continues to lag, airlines are dusting off their old Economics textbooks and reducing supply. Rick Seany, chief executive of FareCompare.com is quoted in this morning’s Wall Street Journal predicting that "...for the consumer, it's as good as we're going to get right now ...Some prices are $50 to $100 higher than just a few days ago." Seany goes on to say that "There's some sort of bottoming here. At least the hemorrhaging has stopped for airlines in pricing." At least for the moment.

In the same WSJ article -- "After Months of Sales, Airfares take Off" -- "Delta Air Lines Inc. said it would push its 8% capacity decline this year to 10% with more cuts in its international flight schedule beginning in September. American said further groundings beginning in September would push its seat reduction for 2009 to 7.5% lower than 2008. Other airlines are considering further reductions as well."

Of course there are numerous volatile factors that could result in a resumption of near term price declines with future demand and fuel costs chief among them. But the experts seem to agree that if you're planning to fly this summer, buy now. Beyond that, as with other markets, no one seems too certain about Q4. And this means that all of us should think long and hard about taking risk off the table regarding commodities (not to mention airline tickets). Unless, of course, we have the risk to stomach it or can pass along cost increases to our customers if the markets rise again.

William Busch

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