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Published: Wednesday, 2/29/2012

Airfares up, expected to rise with cost of fuel

Airlines have pushed through two major prices increases this year, months before the peak travel season. Airlines have pushed through two major prices increases this year, months before the peak travel season.

DALLAS -- Airfares are up and headed higher this summer.

Airlines blame soaring fuel prices that could cost them billions more than last year. That means fares, which normally rise as the summer travel season nears, could increase faster than normal.

Airlines have pushed through two major price increases this year, and it's only February, when leisure travel is slow. It's a sign of things to come.

"You'll see gradual increases and then a much bigger jump in April and May when people start shopping for the summer travel season," said Rick Seaney of travel Web site FareCompare.com.

The latest data on average fares show that Southwest Airlines charged $140 each way during the fourth quarter, JetBlue charged $156, and United Continental charged $270. Length of flight accounted for most of the difference -- on a per-mile basis, prices were similar.

The average fare rose 9 percent between January, 2011 and January, 2012, according to Airlines for America, a trade group of the biggest carriers. Fuel is driving the increases. The spot price of jet fuel rose 18 percent over the same period, government figures show. Airlines burn 48 million gallons a day, making fuel their biggest expense.

There's little that airlines can do about fuel prices. They hedge, which is like buying insurance against big price spikes, and they've been adding more-efficient planes, but it takes years to replace a whole fleet. The simplest response is to raise fares -- that's what they did nearly a dozen times last year.

Airlines will respond to higher fuel prices this year by boosting fares, running fewer sales, and cutting some flights, Michael Linenberg, an analyst with Deutsche Bank, predicted. He noted that despite a weak economy last year, the seven carriers in Airlines for America used the same moves to boost revenue by $14.1 billion, more than offsetting a $12.2 billion increase in fuel spending.

Net profit margins at U.S. airlines fell to 0.3 percent last year from 1.6 percent in 2010, Airlines for America said.

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