News - CNBC.com
Continental Airlines and AMR Corp.'s American Airlines said they raised fares systemwide on flights in the continental United States by $5 each way in what may be a crucial test of industry pricing power ahead of the busy summer travel season.
The fare increases, which come as carriers complain of softening demand, helped push up shares in U.S. airlines. The Amex airline index rose 1.1%, led by a 3.3% rise by United Airlines' parent UAL Corp.
Continental spokeswoman Julie King said the No. 4 U.S. carrier, which initiated the increase, made the move to offset the rising price of jet fuel, which vies with labor as an airline's biggest expense.
A penny rise in the price per gallon of jet fuel adds about $18 million to Continental's cost over the course of a year, she said.
Jet fuel prices have risen about 50 cents, or nearly one third, over the last four months.
American said it matched Continental's fare increase on Friday morning. United said it was studying the increase. Other airlines weren't immediately available for comment.
The move to raise advanced purchase as well as walk-up fares in the U.S. follows two limited fare increases in recent days.
United Airlines on Thursday said it raised some business-oriented fares with increases ranging from $5 to $50 each way, depending on the length of route and the class of service.
Last weekend, Southwest Airlines said it raised prices $1 to $2 on about 25% of its flights.
The fare increases comes as air travel demand, which has fueled the industry's fledgling recovery, appears to be faltering.
In recent weeks, airlines including US Airways Group and Southwest Airlines have warned of sluggish revenue and bookings heading into the summer. In April, many U.S. airlines have reported lower load factors -- the percentage of seats filled with paying passengers.
The industry has struggled to raise fares this year, with efforts like Continental's often collapsing under competitive pressure.
"All fare increases so far this year have had difficulty sticking with the increases either being partially or completely rolled back," said Neil Bainton, chief operating officer of airfare tracker FareCompare.com.
But this round may have better prospects for success, with summer approaching and fares low, Bainton said. "We are entering the high travel season and overall price levels are below 2006 and 2005 for this time," he said.
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