Airline earnings expected to rise this year

0 Comments | Deseret News (Salt Lake City), Mar 19, 2007 | by Anne Kates Smith Kiplinger's Personal Finance

Now that airlines are over their post-9/11 struggles, they are looking for mergers to perpetuate a welcome run of profitability. This year, airline earnings are expected to be more than double last year's, thanks to full planes, fare hikes and lower fuel prices. Speculation pairs United and Continental. AirTran is pursuing Midwest Airlines. If all this happens, American won't go it alone.

But you probably care less about what insiders call "capacity reduction" than whether you'll have to pay more to get where you're going, whether you'll be cramped and hungry on the way, and whether your baggage will be there to meet you when you arrive. The good news is that over the long term, airlines are headed toward consistent -- if not necessarily cheaper -- pricing, with more flights from more locations to more destinations, and fewer restrictions on fares. But you may first suffer through much turbulence.

The proposed mergers will face intense scrutiny from lawmakers, who have scheduled hearings, and from antitrust watchdogs at the Department of Justice. But assuming more industry consolidation occurs, what can you expect? "Thirty years of history has shown that no merger goes well for customers in the short run," says industry observer and airline consultant Joe Brancatelli, who runs the travel site www.joesentme.com/.> But fares won't soar solely because of mergers, says airline analyst Terry Trippler, of Myvacationpassport.com. He studied nonstop and one-stop fares in the Pacific Northwest in the wake of last year's combination of US Airways and America West, during a period when average ticket prices went up roughly 10 percent nationwide. For flights in and out of Seattle, Spokane, Wash., and Portland, Ore., only two fares rose more than the average, eight rose less, five went down and one was unchanged.

Major consolidation would end marginal hubs -- in cities the size of, say, Cincinnati. But low-cost airlines, such as Southwest, JetBlue, Frontier and AirTran, will fill competitive voids. Such alternatives now account for 30 percent of the market and are gaining share.

In January, JetBlue began flying from New York to Chicago -- a market long dominated by United and American. This spring, JetBlue will add San Francisco. And its jets now have more legroom. Says Trippler, "People don't need to buy tickets six months out to save money, only to worry whether the airline will still be around then." If mergers eliminate the fear of worthless tickets, then bring 'em on.

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