Price, Competition, Airlines, Costs.

The airline industry as a whole is anticipating a brutal traveling season later this summer, as it faces increased fuel costs, increased operating costs, and increased competition from low-cost carriers. Delta Airlines has already announced that it will lose $387 million in the first quarter of 2004, and the industry as a whole could amass losses exceeding $1 billion for the first quarter. As a response, Delta is seeking a 30% cut in benefits and salaries from its pilots to reduce its costs. Further, jet fuel prices have been increasing significantly, and every $0.01 increase in fuel costs the industry approximately $180 million.

Competition from low-cost carriers such as SouthWest and Song Airlines, is also hitting major airlines hard. As a result, while airlines would like to raise prices to compensate for increased costs, competition is preventing them from doing so. Travelers are increasingly price-sensitive, and therefore are likely to switch to lower-priced fares even if they have to sacrifice amenities such as onboard snacks and legroom. Even business travelers, long considered a high revenue segment of the market, are moving away from frequent-flyer programs and booking flights with the cheapest fares on the route.

(Updated June, 2004)