Low-Fare Carriers Rethink Ticket Prices

Executives from two of the nation's leading low-fare airlines said Wednesday that fares need to increase in the face of higher fuel costs.

"We need a higher average fare for our tickets," said David Neeleman, CEO of JetBlue Airways (JBLU Quote), at the JP Morgan transportation conference. "We need to get another five bucks or 10 bucks. We are running an airline pretending that oil was going to be $50 a barrel."

Meanwhile, Southwest Airlines' (LUV Quote) Chief Financial Officer Laura Wright said her company's revenue has to rise, although the airline's extensive fuel-hedging program provides a cushion against the need for immediate ticket-price increases.

In recent months, every U.S. airline has reported improving revenue trends thanks to higher ticket prices, but most carriers, with the exception of Southwest, remain unprofitable. Because the low-fare carriers tend to set industry pricing, their commitment to higher ticket prices is a positive sign for the other airlines, depending on the pace at which increases are implemented.

Neeleman said JetBlue has "left money on the table" in pricing and suggested that ticket-price adjustments could be made by improved revenue management, perhaps by adding more "fare buckets," or fare categories. However, that notion goes against the simplified pricing structure generally advocated by low-fare carriers.

"The whole fare thing has to be rethought," Neeleman said. "Our customers will pay us a little bit more money. They love JetBlue. We just have to ask for it."

He cited the example of JetBlue's New York-Florida fares in January and said prices were probably too high on the top end and too low on the bottom end. JetBlue's average fare for New York-Florida flights was about $94 or $95, he said, which likely involved selling a lot of $69 tickets as well as a number of $299 tickets. "We should have had more $129's and $139's," he said.