Air Fares Climb as Delta Blinks

Delta Air Lines' (DAL) decision to raise its highest fares received a warm reception from its rivals, who are hungry for ways to boost revenue in a bruising industry environment.

After Delta Thursday lifted its highest fares by $100 one-way, to $599 on economy tickets and $699 for first class, other carriers quickly jumped on board. By Thursday night, American Airlines' parent AMR (AMR), Continental (CAL), Northwest Airlines (NWAC), US Airways (UAIRQ) and UAL's (UALAQ) United Airlines had matched Delta's move.

The industry increase on last-minute walk-up fares, typically purchased by business travelers, will certainly boost revenue, analysts say. But the benefit won't come close to offsetting the effect of high oil prices. Nor will it significantly improve the odds that Delta will be able to avoid bankruptcy.

Delta's relaxing of its fare cap will likely boost industry revenue by about $300 million, estimates Helane Becker, airline analyst at the Benchmark Co., a New York-based brokerage that does no business with the companies it covers. While not insignificant, that amount is far less than the $2 billion in added fuel expenses Becker expects the industry to incur this year.

Crude oil futures remain near the $60 level after hitting a record close of $61.28 earlier this month. Even though the industry has aggressively slashed costs, oil's ascent has put it on track to lose a total of roughly $4.8 billion this year, according to Ray Neidl, an analyst at Calyon Securities, a firm that does and seeks to do business with companies its analysts cover.

Costs of Crude

Delta, which had previously voiced determination to maintain the fare cap put in place as part of its January Simplifares initiative, said fuel costs forced its hand. "When Delta launched Simplifares in January, crude oil was selling at $43 a barrel compared to as much as $61 per barrel in recent weeks," says Paul Matsen, the airline's chief marketing officer. "Despite our best intentions to keep the current fare caps in place, we have been forced to find ways to offset this dramatic spike in costs."