US airlines back off from fare increases

United Airlines and American Airlines said today they have backed away from fare increases, signaling that profit-boosting price rises have come to an end - at least for now.

US airlines have been using newfound pricing power to raise fares amid robust demand. The higher ticket prices have helped carriers offset soaring jet fuel costs and generate their strongest profits in six years.

But with air travelers frustrated by tighter security measures implemented over a week ago and the industry heading into the seasonally-weak fall travel season, there may be no room for more price increases, analysts said.

"A ticket price increase would have been a positive for the industry if it stuck in an uncertain time of the year," said Ray Neidl, an analyst with Calyon Securities.

United Airlines, owned by UAL Corp, raised business fares by US$5 ($7.91) for one-way trips and US$10 for round trips late on Thursday. That increase was briefly matched by American Airlines, owned by AMR Corp. and by Delta Air Lines Inc., but other carriers did not follow suit.

By Monday morning, American and United -- the top two US carriers -- had both backed off the increase, aimed chiefly at business travelers. The airlines did not offer any reasons for their change of heart.

The retreat on price increases pressured airline shares. In afternoon trading, AMR was down 2 per cent at US$20.49 on the New York Stock Exchange. UAL fell some 3.7 per cent to US$23.97 on Nasdaq. The Amex airline index was down 1.6 per cent.

The attempted price rise came just over a week after an alleged bomb plot was foiled by British authorities, causing a security clamp-down at US airports.

The tighter security measures, including banning liquids such as hair gel and toothpaste in carry-on bags, threatened to further sap demand as the peak summer travel season winds down.

But experts say the effort to raise prices, even though it failed, is a sign demand remains healthy.

"They still have the pricing power ... because they haven't had to cut prices," said Terry Trippler, an industry expert at travel club myvacationpassport.com.

The attempt at a fare increase "tells us that advanced bookings are holding, that people are still booking," Trippler added.

The most recent successful fare increase came about two weeks ago when United led an increase in domestic fares of up to US$10 per leg for tickets purchased seven days or less in advance.

J.P. Morgan analyst Jamie Baker said failed attempts are par for the course. But he added the 21 successful increases since 2005 have more than offset the 17 failures. He expects another attempt to raise fares in the coming weeks.

- REUTERS