Who can figure airline pricing methods?

The Associated Press reports today that Delta is adding a $10 to $40 round trip fuel surcharge. Northwest and US Airways say they are studying Delta’s move. Last Friday, Northwest was the last of the big carriers to agree to a 3-to-5 percent price increase first announced by United.

Every few days, it seems, there’s another story of an airline increase so if you haven’t looked at a while, perhaps you’re steeling yourself for sticker shock.

But it doesn’t always work out that way.

A month ago, I wrote that fares were expected to go up when ATA announced it was ending its Minneapolis to Chicago (Midway) run. The Northwest fare to Midway almost doubled — from $114 roundtrip to $210 roundtrip — once the ATA competition disappeared.

However, at the time, Northwest was charging $384 for a roundtrip flight to O’Hare. Today, even after all the news reports of price increases, a roundtrip ticket to O’Hare is half of what it was a month ago ($193).

  • Al

    Don’t worry, you’ll pay for that trip eventually. We all will. The airline will go bankrupt and we’ll all be on the hook.

    I’m pretty naive about big business and bankruptcy court. So here’s what I don’t get. Northwest and Delta go through bankrupcy. They are now both selling fares that don’t cover their expenses (higher fuel prices, and yes I read the headline, new fuel surcharges, but they have been losing for a while now). So they have been losing big money. Are they not headed for more of the same problems? Why is this allowed to happen? Could someone explain this to me? I truly am confused.

  • Bob Collins

    The airlines were deregulated back in the days of Alfred Kahn (now at Cornell where we don’t hear much about him any more). So there’s nothing to stop them from committing financial suicide. The answer is, yes, they’re heading for more of the same problems although Northwest is sitting on a ton of cash so they can hold out a little longer, perhaps, than some airlines.

    But clearly smarter people than us can’t figure it out either since both Delta and Northwest have seen their stock price absolutely tank in the last two or three weeks.

    You see tonight how Delta has raised fares and needs the other airlines to raise there’s too in order for them to “stick?” That’s why airlines are merging. With fewer airlines, you don’t need to keep an eye on the other guys to raise your fares.

  • Al

    So is the game plan?

    1. Run yourself into the hole because then the other guy has to as well.

    2. Hope you can last longer.

    3. Raise your prices once he’s out of business.

    If this is the plan, it seems like a dangerous one, and pretty bad for the country and consumers. Or is this not really what’s going on?

  • http://n466pg.blogspot.com Daveg

    Al –

    I think you have it just about right.

    I call it the Prisoner’s Dilemma Economics Model. The only way to win is if everyone else loses.