Now that United Airlines has filed a reorganization plan to exit bankruptcy, it faces a formidable challenge: becoming profitable while paying skyrocketing jet-fuel prices.
That could mean United will try to raise airfares.
United’s financial projections assume an oil price of $50 per barrel through 2010. Oil is currently trading in the mid-$60-per-barrel range.
“If long-term oil prices are significantly higher than are contemplated today, they will drive industry fare increases or structural changes, such as capacity reductions,” United said in its financial projection filing made Wednesday.
Airlines have attempted to raise fares multiple times this year but often retract the fare increases when competitors don’t follow.
“Maybe it would be a situation where United says, even though the rest of you don’t go along with it, this is what we’re charging,” said Terry Trippler at Cheapseats.com. “I’m waiting and waiting for one of the legacy carriers to do that.”
Even with higher jet-fuel costs, airfares have declined 4.3 percent in the first quarter of 2005 compared with the same period a year ago, according to the U.S. Bureau of Transportation Statistics’ most recent Air Travel Price Index. Fares in the first three months of this year are also lower than fares in the same period of every year since 2000.
However, United increased fares recently on at least two routes – including Dallas to Atlanta – that were matched by American Airlines, Delta and Northwest.
“As other (commodities) in the industry increase, like fuel, airlines, like other industries, have no choice but to increase their prices, and we’re already starting to see some of that happen this year,” said United spokeswoman Jean Medina.
In Denver, Frontier Airlines chairman Sam Addoms said he thinks United’s exit from bankruptcy “probably means slightly higher prices in the marketplace.”
Addoms said United, which has operated in bankruptcy since late 2002, will face more pressure to make profits.
“I think the most important aspect of what’s taking place is their emergence from bankruptcy and desire and need to create profitability within the company, which is a new need,” Addoms said.
But Robert Mann, president of the Port Washington, N.Y.- based airline consulting firm R.W. Mann & Co., said United might want to raise fares but may not be able to because of competition.
United’s planes are already flying relatively full with high passenger load factors, so projections to increase revenue might put the onus on raising fares.
“And as we’ve seen, it’s very difficult to do that,” he said. “Once the market has a taste of low fares, you’ve created that market.”
Staff writer Kelly Yamanouchi can be reached at 303-820-1488 or kyamanouchi@denverpost.com.
