Northwest Changes Course and Leads Way on 4% Fare Hike

For months, major U.S. airlines have been chomping at the bit to raise leisure air fares and take advantage of a strong demand for domestic airline tickets that has filled the nation’s jetliners to near capacity. On Tuesday they got their wish.

After scuttling six previous price hike attempts this year by major U.S. carriers, Northwest Airlines decided to lead the charge, raising fares on advanced-reservation tickets by 4%. Other U.S. airlines quickly followed suit.

Although the move is expected to take a bite out of the wallets of leisure travelers, industry analysts said it is a natural price adjustment given the strong, steady demand for domestic air travel.

“We have been carrying a strong passenger load all summer long,” United Airlines spokesman Joe Hopkins said. “Advanced booking leisure fares have not increased in quite a while.”

Consumer demand for domestic air travel in the first seven months of the year filled airplanes to 71.3% capacity, according to industry analysts. As far as the airlines are concerned, there is room to raise rates and not see a decrease in ticket purchases.

St. Paul, Minn.-based Northwest refused to comment on its change of heart Tuesday, but analysts speculated that the carrier anticipates a quick resolution to its current contract dispute with pilots and is attempting to recoup revenue lost this summer when passengers opted for other airlines not threatened with a potentially crippling strike.

“The only thing that would make management put this fare increase into effect is they must know full well there is not going to be a strike,” said Terry Trippler, editor of Airfare-Report newsletter based in Minneapolis.

Also raising their domestic prices Tuesday were United Airlines, American Airlines, Continental Airlines, Delta Air Lines, Trans World Airlines, US Airways and America West--marking the first across-the-board increase by all major domestic airlines since December.

Leisure travelers will be most affected by the price changes, which will include tickets purchased seven, 14 and 21 days in advance.

Northwest’s move came just one day after American backed off from its own 4% price hike attempt launched last week. Most major airlines embraced the increase, but Northwest balked even after American and other carriers decided to exempt Northwest’s three principal hubs from the increase.

Northwest was also the main culprit in thwarting five other fare increases attempted since April. But on Tuesday, the company changed course.

“The other major six airlines are dancing in the clouds,” said Tom Parson, who has watched airline ticket pricing for 16 years as publisher of Best Fares consumer newsletter. “They have been fighting for a fare increase like crazy.”

Most airline stocks rose on news of the fare hikes. On New York Stock Exchange trading, American’s parent AMR Corp. stock rose $2.75 to close sat $66.19; UAL, parent of United, added $2.50 to $74.06; Delta shares soared $5.19 to $124.94; Continental shares gained $1.44 to $54.44. On Nasdaq, Northwest stock added 50 cents to $30.50.

Michael Linenberg said Northwest probably would have gone along with the previous price increases had the company not been trying to hang on to customers already leery of a possible walkout by pilots.

“People were worried about a strike. If Northwest kept their fares lower they would be more attractive,” he said. “In most people’s minds, that explains the rationale behind Northwest keeping their fares flat while the rest of the industry was trying to pass on a fare increase.”

Northwest has been in negotiations for several months with the Air Line Pilots Assn. over terms of a new contract. The pilots are prepared to strike Aug. 29 if there is no settlement, and union and management negotiators began last-ditch bargaining Monday at an undisclosed resort in northern Minnesota.

Based on its move to raise fares, Linenberg said, Northwest now appears to be looking beyond the labor strife and positioning itself to reap increased revenue once the dispute is settled.

“They will now be able to work off a higher fare base,” he said.