Anyone else having flashbacks to 2000?

Fares are going up, sort of, but not in a healthy way. This time, it’s in the form of massively increased fuel surcharges. United put together a $25 each fuel surcharge for domestic flights, and the usual suspects have matched except for Northwest. They may match today, or it may fall apart, but I don’t like the trend this is setting.

No, it’s not the increase in fares that bothers me, but rather the piecemeal way in which it’s happening. All I know is that with fuel prices where they are, fares need to go up. They can do it with a fuel surcharge even though that seems like a waste of time. Why not just increase fares? Maybe there is a hidden reason that I don’t know. Are fuel surcharges commissionable? Anyway, that’s not the point.

As with most fare increases, this happens on higher structure fares. Take LAX to Chicago on United, for example. Right now there are sale fares out there for as low as $224 roundtrip. The surcharge doesn’t apply to these fares. In fact, the fuel surcharge doesn’t apply until you reach the “UA” fare for a whopping $437 each way. You think there are a lot of leisure travelers buying that fare? Nope.

So, it’s like we saw in 2000 right before the bubble burst, fares at the upper end of the spectrum kept going up while leisure fares stayed where they were. When the economy started going downhill, business travel started to drop off or at the least became much more cost conscious. That meant fewer seats were filled and less revenue was coming in the door. To compensate, the airlines had to fall back on the leisure fares, and those were still too low. Since the number of passengers dropped off, fares dropped so that people would buy more tickets. And that’s how the airlines started bleeding money last time.

People may say that we don’t need less capacity since planes are full, but it’s higher business fares that are propping that up right now. Planes may be full, but airlines will be losing money when they have to rely on leisure fares that they have been unable to increase. That doesn’t work.