Rising Airfares Are Not Good News For Airlines

By Douglas A. McIntyre Updated Aug 25, 5:24AM EDT · Published Aug 24, 4:19PM EDT

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Airlines, which have made an art out of nickel-and-diming the public with new fees, are now raising fares. This is no time for investors to rejoice.

According to Reuters, Rick Seaney, chief executive of Farecompare.com, estimates,that fares for domestic flights are 16 percent to 20 percent higher than they were a year ago. The news service did not challenge Seany’s claim that “Demand is going to be pretty good this year for holiday travel because a lot of people forewent their trip last year.” Since joblessness remains above 9 percent and sales of existing homes plunged to a 15-year low, many people are probably avoiding taking expensive vacations this year too.

Airlines are getting a break on jet fuel prices since oil markets are trading down near $73.46 amid concerns about a slowing economy. That may not last. Analysts expect OPEC to restrict production if it falls well below $70, not a far-fetched premise. That would push crude prices up, which in turn would lead to higher jet fuel prices that could crush airline margins at the start of the busy holiday travel season. Oil demand also continues to rise. OPEC sees worldwide crude use rising by 1.2 percent to an average of 86.56 million barrels per day next year.

Some airline and travel stocks have soared lately as if they were immune from the sputtering recovery. UAL Corp. (NYSE:UAUA), parent of United Airlines, and US Airways Inc. (NYSE:LCC) are both up double digits as investors bet that the carriers would benefit from a merger. Priceline.com Inc. (NASDAQ:PCLN) has also been on a tear, soaring more than 28 percent in three months thanks to better-than-expected earnings. These are the exceptions, though, as most airline and travel stocks have posted declines.

If any of the pessimistic economic forecasts are even remotely correct, the travel industry will suffer and these outperformers will quit outperforming as well

–Jonathan Berr

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.