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United hikes fares 3 to 5 percent, cites fuel costs

United Airlines, the second-largest U.S. carrier, raised most domestic airfares by 3 to 5 percent Thursday as it struggles to cope with soaring fuel costs.
/ Source: The Associated Press

United Airlines, the second-largest U.S. carrier, raised nearly all its domestic airfares by 3 to 5 percent Thursday as it struggles to cope with soaring fuel costs.

The widespread increase is the third in a row initiated by United in just over two weeks, and will likely entice other carriers to follow suit. The Chicago-based carrier's last two attempts were quickly matched by competitors and remain in place in many markets.

United spokeswoman Robin Urbanski said the increase, which applies everywhere in the U.S. except to and from Hawaii, is "part of our effort to pass on increases in our commodity costs that will help offset the significant and rapid rise in fuel."

The move comes just two days after Delta Air Lines Inc. Chief Executive Richard Anderson said domestic carriers need to raise tickets 15 to 20 percent just to break even at existing fuel prices. United parent UAL Corp., Delta and other major carriers reported billions of dollars in combined quarterly losses in recent days.

"This is the most challenging financial period in the history of the industry," said John Heimlich, chief economist of the Air Transport Association. "Just at the same time we have this unprecedented surge in jet fuel prices with no end in sight, we're bumping up against a weakening economy."

Airline operating costs have surged as the price of jet fuel, like gasoline, has skyrocketed along with the price of oil. The jump has taken even some experts by surprise. Just months ago, the ATA was predicting the industry would turn a profit for the third straight year in 2008, but is now predicting a multibillion dollar loss, Heimlich said this week.

United's 3 percent fare increase affects routes where it competes head-to-head against low-cost carriers such as Southwest Airlines Co., while the 5 percent increase applies to routes where there is no competition from budget carriers.

The new prices will raise roundtrip fares by as little as $2 on the cheapest routes, but could add as much as $90 on some flights, Urbanski said.

For example, a one-way ticket from Chicago to Los Angeles — a route on which United competes against Southwest — that was $322 increased to $332, Urbanski said. On a less competitive route such as Philadelphia to Los Angeles, a one-way ticket that was $758 now costs $796.

Rick Seaney, chief executive of the airline ticket research site, said he expects other carriers will match the increase before the weekend.

"The bottom line is they're going to have to raise airfares, among other things," given the scale of recent quarterly losses, he said. "I think there will be more increases in the coming weeks."

No other carrier immediately announced it was following suit. American Airlines, the nation's largest carrier, and Southwest said they were evaluating the move.

United's corporate parent earlier this week said it lost $537 million during the first three months of the year because of increased fuel costs. The carrier called the current environment "extraordinarily difficult" for airlines, and said it planned to cut flights and slash 1,100 jobs in an effort to rein in costs.

The loss was worse than investors had been expecting, and the company's shares shed a third of their value in a matter of hours. A rally among airline stocks Thursday won back only a fraction of those losses.