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Airline Industry

Airlines hope cheap fares can save them  Mar 09, 2009

If you've been looking for that bargain-basement airfare, this may be your time to book. The Houston Chronicle says the nation's deepening financial crisis recession has airlines "drastically cutting some fares to fill empty seats. How long they will last is anyone's guess, but fare-watchers are marveling at the steep declines." Tom Parsons of tells the Chronicle: "This may be one of our last hurrahs. I have never seen airfares drop like this from one year to the next.”

Bob Harrell of Harrell Associates, a group that tracks fares, tells the Chronicle that domestic leisure fares have dropped about 14% year-over-year. Headed overseas? The Chronicle says "ticket prices to European mainstays London, Paris and Rome are down about 35% from peak levels." The Chicago Tribune comes up with a similar find, writing: "Desperate to sell seats on increasingly empty jetliners, airlines are slashing airfares to prime overseas destinations in Europe and Australia."

The drop in fares come as airlines try to balance keeping planes full while not letting the bottom fall out of fare levels. Reuters writes "monthly reports on airline operations released this (past) week showed sharp declines in traffic as carriers slashed capacity. Most troubling for the airlines, however, was the shrinking load factors, which measure how full a plane is. American Airlines, for example, said its load factor was 73.9%, down 2.9 percentage points from February 2008. Continental Airlines reported a load factor of 72.9%, a decline of 3.1 percentage points from a year ago."

With that, Reuters says "U.S. airlines are looking hungrily at the summer vacation travel season for a bump in their leisure bookings." Some airline executives say a drop in corporate travel is behind the current slump, leading to hope that vacationing Americans can help blunt the slowdown. "What we see ... right now is that the softness is mostly in business, as opposed to leisure," US Airways CEO Doug Park told Reuters last week. "You stimulate leisure somewhat with lower fares."

Still, the dropping fares come even though airlines have already made big capacity cuts during the past year. But even that apparently has not kept pace with the current decline in demand. Experts say that means airline could prune schedules even further, though that's probably unlikely until after the peak summer travel period passes. "Come late summer or fall, they are going to have to cut another 5 or 10% out of the system to force prices up," fare-watcher Parsons tells the Chronicle. Aviation consultant Mike Boyd struck the same chord, telling the Chronicle he thinks more cuts "are going to be in the works." He predicts once those cuts go through, fares will stabilize -– and could even head back up.

If things don't improve in the foreseeable future, the Los Angeles Times writes "a prolonged downturn could ground weaker carriers and leave travelers with fewer choices and eventually a return to higher fares, analysts and industry officials said." Giovanni Bisignani, CEO of the International Air Transport Association trade group, says: "The industry is in a global crisis, and we have not yet seen the bottom. Alarm bells are ringing everywhere." For now, though, the airline industry's problems likely means bargain airfares for many consumers. "These are not prices that we're going to see outside of a recession," Rick Seaney, CEO of airfare research site says to Reuters.

Airlines hope cheap fares can save them
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