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Airlines predict profitable summer ahead of uncertain fall

This promises to be a moneymaking summer for the airlines, with planes full of passengers paying higher fares than a year ago. But there could be a fall chill in the air.
/ Source: The Associated Press

This promises to be a moneymaking summer for the airlines, with planes full of passengers paying higher fares than a year ago. But there could be a fall chill in the air.

Leisure travelers say they're cutting back on travel because of high-priced tickets, concern about the economy, and the need to spend more for everything from food to gasoline.

Airlines are planning to reduce flights once summer ends. Some are already offering sales to fill their planes when vacation season is over.

"We are worried about what happens after Labor Day," says Helane Becker, an analyst for Dahlman Rose & Co. "We're going to see less demand and more discounting."

Economists have lowered growth forecasts after a bunch of recent bad economic news. Unemployment remains above 9 percent. Retail sales are slumping for the first time in nearly a year. Becker worries that could foreshadow a drop in leisure travel, offsetting continued strength in business travel.

People who bought their airline tickets before those grim headlines helped push May air traffic above last year's levels, especially on international routes. Discount airlines including Southwest and JetBlue grabbed a bigger share of the U.S. market as vacationers and even business travelers tried to save money.

Nancy Ruby, a customer-service trainer for a nationwide retailer, used to fly United but was taking Southwest from Dallas to Baltimore this week.

"It's not a corporate policy, but my company has encouraged us to book as far in advance as possible to get lower fares," she said. And she's been traveling on Southwest more often to avoid fees on checked bags and reservations changes.

Travelers like Ruby helped Southwest boost its May traffic 10.9 percent over a year ago. JetBlue increased traffic 10.6 percent, but growth was much slower at Delta and American and traffic fell slightly at United and Continental.

Higher fares, fuller planes
Whether their traffic was up or down, higher airfares boosted revenue.

United Continental Holdings Inc. said revenue per seat jumped 14 to 15 percent from a year ago, and that doesn't even include money from extra fees. The same measure was up 11 to 12 percent at Southwest Airlines Co. and a stunning 19 percent at JetBlue Airways Corp.

The average flight in May was more than 83 percent full, an occupancy level unheard of a few years ago. And it could go higher in June, July and August.

Since 2008, airlines have tightly controlled the number of seats for sale. That's not only made flights fuller, it's allowed the airlines to push fares higher. And they're making more from fees — $5.7 billion last year from fees on checked bags and reservation changes, the government said this week.

The airlines need a big summer to offset jet fuel costs, which are up about one-third from a year ago. If fuel stays at $3 a gallon, the industry's bill for 2011 will be $54 billion, an increase of $15 billion over last year, according to a trade group.

Airlines are preparing for the slower fall travel season. This week, JetBlue and AirTran rolled out sales that run into late 2011, indicating a need to fill seats.

Deals scarce
Henry Harteveldt, a travel-industry analyst for Forrester Research, said airlines could cut even more flights than currently planned, making it harder to find a cheap fare. Travelers say deals are already scarce, and that's causing them to rethink travel plans.

Larry and Carla Brock of Pittsburgh said they paid $840 for one round-trip ticket on US Airways to Texas, where one of their sons was graduating from surgical residency at a Dallas hospital. A companion pass made the trip financially bearable.

That price "is kind of ridiculous," Carla said. "If this (trip) was just a vacation, we'd have to think twice about it."

Victor Padilla, a technology expert for an accounting firm in Dallas, said instead of his usual three or four weekend trips to visit friends in New York and Chicago, he'll go just once or twice this year.

Joan Spurlock, a physical therapist in Fort Worth, Texas, said her family's flight to a summer vacation in Grand Cayman will cost $650 each in airfare, about one-third more than the same trip two years ago. Spurlock was taking her 14-year-old daughter, Jamie, to a dance competition in Florida this week, but her husband and another child were staying home because of the cost.

"We'll travel less often. It's both higher fares and the economy," she said. "Don't get me started on gas prices — what a rip that is."