- The Washington Times - Thursday, April 17, 2008

NEW YORK (AP) — United Airlines said yesterday it increased ticket prices for the second time in a week, adding to its bet that customers will absorb an unrelenting rise in fuel costs.

The move — which came to light as oil prices topped $115 a barrel for the first time — could pressure other carriers to follow suit. But it also runs the risk of driving customers away at a time when they are getting fed up with air travel and coping with personal financial stresses.

“There has to be a price point where the consumer says, ‘OK kids, we’re staying home,’ ” said Terry Trippler of tripplertravel.com.

Since the start of the year, airlines have tried to raise ticket prices 12 times across most of their route networks, according to airfare research Web site FareCompare.com. Four of those increases immediately failed to stick after competitors refused to follow, and others at least partially unraveled as carriers jostled to find the right price to lure travelers.

United’s new pricing came as the parent of American Airlines announced it will sell its investment arm for about $480 million to two private-equity firms.

AMR Corp. said it would sell American Beacon Advisors Inc. to Lighthouse Holdings Inc., an affiliate of Pharos Capital Group LLC, and TPG Capital, the buyout arm of TPG, formerly Texas Pacific Group.

Fort Worth, Texas-based AMR said the sale would let AMR focus on its core airline business, which is under stress because of high fuel prices. AMR reported yesterday that it lost $328 million in the first quarter, a reversal from the $81 million profit the company earned in the same period last year.

And in Phoenix yesterday, US Airways Chief Executive Officer Doug Parker warned employees that airlines will have to make “dramatic changes” as oil prices rise and the economy sours, though he wouldn’t comment about speculation that his airline is in deal talks with other carriers.

In a letter to employees, Mr. Parker mentioned a news report that US Airways was in talks with United Airlines and another that said it would be good partner for American Airlines.

“I can’t comment on any specific discussions or transaction,” Mr. Parker wrote.

Airline companies are struggling because of fuel costs. Given that no one knows how high oil prices could go, even longtime industry observers are stumped when asked how high fares could rise.

“Prices just keep going up and up and up,” Mr. Trippler said. “If you’d asked me a year ago, I would have given you a much lower number than I’d give you today.”

Chicago-based United, the second-largest U.S. carrier, said it was technically raising its fuel surcharge — not the base fare customers typically see in ads.

Travelers on some flights, such as Chicago to Minneapolis, who were paying a surcharge of $50 round trip will now see that charge increase to $70, spokeswoman Robin Urbanski said.

Fliers in markets where United previously did not apply a surcharge — mostly where the carrier competes head-to-head with low-cost carriers — will now be charged an additional $10 round trip. Mr. Urbanski said United faces competition from budget carriers like Southwest Airlines Co. on about 80 percent of its domestic routes.

United last week raised fares by $4 to $30 round trip, citing record fuel costs. Other carriers matched that increase. No major airlines immediately matched the airline’s latest increase across their route networks.

“My gut tells me that this attempt may not make it,” FareCompare.com Chief Executive Officer Rick Seaney said.

Mr. Urbanski said adjusting the fuel surcharge, which is typically wrapped into the final price customers see when they buy tickets online, rather than the base fare, gives the airline more flexibility to respond to changes in fuel prices.

But Joe Brancatelli, who runs the business travel Web site JoeSentMe.com, said the strategy has another benefit for airlines: “They put on surcharges instead of raising fares so corporations — who pay the most for tickets anyway — don’t get their corporate discounts.”

Jet fuel prices, which are rising with the price of oil, jumped to an average of $3.26 a gallon in New York through March, up 73 percent from a year earlier.

That difference is significant, given that an Airbus A320 or similar mid-size jet burns about 6 gallons of fuel per seat per hour, said airline consultant Robert Mann. Older planes and regional jets consume even more fuel.

The surge in fuel prices has left airlines scrambling to find ways to boost non-ticket revenue by charging extra, not just for drinks and food, but also for baggage and added leg room .

Still, raising ticket prices is the surest way to boost revenue, so carriers are likely to continue pushing fares higher even if United’s latest increase is eventually rolled back.