Air fares set for record hikes in 2011?

Sharon Singleton, QMI Agency

, Last Updated: 11:27 AM ET

Airfares may be set for a record-breaking series of increases in 2011 as oil prices surge, one leading air travel expert has predicted.

Some of Canada's biggest airlines, which have already pushed up ticket prices this year in response to rising costs, said they are monitoring the latest spike in crude oil prices closely.

Airfares at some of the biggest U.S. carriers such as United Airlines, Continental and U.S. Airways went up by $10 US a round trip this week, while Delta upped its fares by between $10 and $14.

Prices at the big North American airlines have now gone up six times this year, that compares with four hikes in 2010 and three in 2009, according to figures from FareCompare.com, which monitors 500 airlines worldwide.

"We're on pace for a record," said FareCompare chief executive and co-founder Rick Seaney, adding there were 17 hikes in 2007. "The first increases were related to pricing power from the airlines, but the last few have definitely been related to oil prices."

Prices for the leisure traveller in the U.S. have risen by about $50 this year, or as much as 25% depending on the ticket price, whereas business fares are up $100, or about 15%, Seaney said.

WestJet, Canada's second-biggest airline, has put up prices three times, once in January and twice in February, because of high fuel charges and is continuing to monitor the price of oil. Its increases were between $5 and $10 depending on the distance travelled and the fare class.

Air Canada has also been responding through higher fares and surcharges, but said it was unable to give specific figures on how much prices have risen.

Porter Airlines, which flies more fuel-efficient Bombardier Q400 turboprop jets, said it hasn't imposed any fuel surcharges.

The turmoil in the Middle East has coupled with rising demand to push oil prices to their highest levels in two and a half years. Fuel prices are the biggest expense for an airline accounting for about 30% of costs. WestJet said every one cent increase in the price of jet fuel costs the Calgary-based carrier an extra $10 million.

Air Canada said fuel cost it $2.65 billion last year, with every $1 change in the price of West Texas Intermediate, the benchmark price for U.S. oil, cutting operating income by $25 million.

The spike in oil prices comes just as demand for air travel was picking up again after slumping during the financial crash, which lead to one of the worst years on record for the aviation industry. Analysts said demand in Canada and the rest of the world remains robust and so far, the increase in prices is not having an impact on travel.

"The economy has come back quite robustly and business travel is on the increase, so the marketplace is in a position to be fairly resilient to some spikes in oil prices," Porter president and chief executive Robert Deluce said.

Both WestJet and Porter on Thursday announced an improvement in February load factor, a measure of airline performance.

"There has been continued strength in year-over-year demand and so far there does not seem to be any reason for that to slow down," said aviation analyst Chris Murray of P.I. Financial. "But there is a delicate balance between the price of the fare and demand."

But the International Air Transport Association (IATA) warns the pickup in demand will do little to offset the surging costs.

Geneva-based IATA on Wednesday cut its forecast for 2011, saying net profit is likely to be half of last year's level.

"Political unrest in the Middle East has sent oil over $100 per barrel. That is significantly higher than the $84 per barrel that was the assumption in December," IATA director general and chief executive Giovanni Bisignani said.

"At the same time the global economy is now forecast to grow by 3.1% this year, a full 0.5 percentage point better than predicted just three months ago. But stronger revenues will provide only a partial offset to higher costs," he said. "Profits will be cut in half compared to last year and margins are a pathetic 1.4%."


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