Sky-High Fares Here To Stay

This post first appeared on Minyanville.

Would-be travelers are keeping their fingers crossed the air will soon seep out of what many are calling a bubble in crude. Certainly, that will bring relief from sky-high fuel prices. Airlines can then drop all those silly fees. Life can return to normal.

If only it were that simple.

Earlier this week, Scott Kirby, President of US Airways (LCC), shed some light on the future of fare hikes and fees. Given its current cost structure, the airline needs to charge $700 per passenger per flight just to break even - well above its current average ticket price. Whether it's fare hikes or surcharges (for additional luggage, meals, pillows and blankets), prices are either going up or airlines are going down. Some believe both will come to pass.

Oil prices have remained stubbornly high, despite interventionist political rhetoric, offshore drilling proposals and ineffective summits in Saudi Arabia.

Then yesterday, a change in China's energy policy offered a ray of hope that surging global demand may begin to taper off. Chinese authorities are scaling back oil subsidies and pushing up domestic fuel prices. Analysts hope bigger tabs at Chinese pumps will slow what many believe is the unnaturally high demand such subsidies create.

But even if crude tumbles, it will offer little solace to travelers.

Not only has persistently high crude doubled fuel expenses over the last year and all but eroded the industry's already thin margins, but the lion's share of cust-cutting was undertaken after 9/11, leaving airlines with few options going forward.

Competitors like Northwest Airlines (NWA), United (UAUA) and Delta (DAL) are trimming the fat where they can, reducing capacity and canceling flights simply because they lose money each time a plane takes off.

Consider that the next time your flight is canceled due to “weather” just as the sun shines and a gentle breeze blows in off the putrid swamps of Secaucus, New Jersey. Yet another failed attempt to fly out of Newark International Airport.