by InvestorPlace Staff | February 29, 2012 11:08 am
With winter turning toward spring and American workings beginning to plan their summer vacation, travelers are being greeted with the unpleasant news that airfare may rise just in time for the summer season.
The Chicago Tribune reports that airfares have experienced a recent bump in price, and may continue to climb throughout the summer. The rise in ticket price likely corresponds to the recent jump in fuel prices. This trend is especially unfortunate considering the increase in airfare began this month, with February frequently being the yearly low point for leisure travel. American vacationers may experience a marked bounce in ticket prices in anticipation of the summer months — according to Rick Seaney, CEO of FareCompare.com, “You’ll see gradual increases and then a much bigger jump in April and May when people start shopping for the summer travel season.”
In correlating the climb in airfare to rising fuel costs, ticket prices increased the greatest for longer distance flights. The average price of airfare rose 9% in the year between January 2011 and January 2012. According to government figures, the prices of jet fuel rose 18% over the same period; the airline industry consumes 48 million gallons of gasoline per day, and it is by far their largest consumable expense.
Unfortunately, the airline industry has little leverage to change their ticket prices, as their airfare rates fluctuate largely at the whim of fuel prices. American motorists have to contend with the rising price of gas as well — fuel has risen 30 cents to $3.72 per gallon in just the past month.
Corporate profits climbed markedly in 2011; and while business travel is less susceptible to market vagaries than leisure travel, smaller firms may nevertheless be shying away from air travel in light of climbing prices. Airlines can expect little corresponding profit increase from business travel in spite of a general market rebound.
While net profit margins at U.S. airlines fell to 0.3% last year from 1.6% in 2011, budget airlines will probably take the least earning hits of all major airlines. JetBlue (NASDAQ:JBLU) may weather the flux in fuel prices most evenly according to analyst estimates, with Southwest Airlines (NYSE:LUV) also likely to suffer the lowest profit downturn. In light of flight cancellations and higher airfares, mid-level airline companies such as Delta Air Lines (NYSE:DAL) may be much more severely affected.
— Adam Patterson, InvestorPlace Assistant Editor
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