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Fuel surcharges on plane tickets soar. How long will it last?

Fuel surcharges send the price of plane tickets higher, but lax demand may counter hikes.

By / Staff writer / June 10, 2011

In this April 15, 2008 file photo a Northwest plane is seen parked as travelers wait for their flight at Detroit Metropolitan Airport in Detroit.

Kiichiro Sato/AP Photo, file

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Airlines call it a "fuel surcharge," but the rest of us call it a price hike.

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That's the top story behind airfares this year: Ticket prices are higher in 2011, and the cost of jet fuel is a big reason.

But that doesn't mean travelers won't find bargains, or that the price of oil is the only thing that has pushed airfares upward. Here's the big picture:

First, the fuel surcharges airlines are tacking on are huge – as much as $500 per round-trip ticket on some long-distance routes. These fees aren't new, but they've skyrocketed just in the past few months.

Second, fares for travel this summer are typically higher than they were last year. Yet ticket prices still depend on airlines competing to see what consumers will pay, so there is some pressure to hold fares down.

An example: During the week of May 15, airfares for a June flight from New York to Rome dropped to $839 round trip, roughly 40 percent lower than the prices seen for that same June flight as of January, which started at $1,399, says travel expert Tom Parsons. That occurred even though the fuel surcharge for that flight had jumped by $80 during that time, to a total of about $420.

This doesn't mean the same kinds of deals will abound for peak-season flights in July or August, says Mr. Parsons, chief executive of the travel website BestFares.com. But it shows that, despite the big fuel surcharges, ticket prices can move in more than one direction.

"July is going to be high demand," Parsons says, as families try to travel during the narrowing window between one school year and the next. "And the airlines can demand more money."

If you're shopping for a ticket during the peak weeks of summer, whether it's a domestic flight or international, strategies such as being flexible regarding the timing of a trip can control the cost somewhat. If you don't mind traveling in September rather than August, fares may come down as airlines scramble to keep their planes full, say travel experts.

But prices in July and August are typically steep (with trips from US cities to Europe well above $1,000 per round-trip ticket).

Higher oil prices aren't the only reason. Airlines are also riding the tail wind of a stronger economy and consumers who are tired of "staycations."

The industry is also pushing to get itself on stronger financial footing after years of losses or tepid profits. Consolidation among large airlines, through mergers, has reduced competition on many routes. Airlines have also cut the number of flights they operate, so planes are fuller and consumers are bidding for fewer seats.

Oil prices are a big factor, though. Jet fuel costs are about 30 percent higher than they were a year ago, the airline industry says. By some estimates, fuel now accounts for more than one-third of airlines' costs.

Surcharges are the industry's main response. They've risen around the world, although they're smaller on shorter flights than on longer ones. To the typical traveler, they're invisible. You just see a total price. An example of how high they can be: Surcharges for trips to Europe as of May were about $420 per ticket, up from $260 at the beginning of 2010, according to data tracked by BestFares.com.

But the higher fees can scare away customers, so it's a difficult balancing act for airlines.

"There have been 12 attempted fare hikes since the start of the year" and some of them haven't stuck, says Rick Seaney, chief executive of FareCompare.com, a website for finding travel deals.

Industry analysts hold differing views about where prices will head.

"I don't think fares are going to go up from here, because people will just not buy them," says George Hobica, who runs Airfarewatchdog.com, another travel website.

By contrast, the travel arm of Microsoft's Bing.com sees upward momentum in fares. The site allows users to see estimates of whether prices on a given flight will head up or down in the next few weeks. Lately the advice has often been to "buy now," with fare hikes looking more likely than cuts.

"The notion that fares will drop for summer is highly unlikely," says Krista Pappas, Bing's travel director, in an e-mail interview. "However, airlines do periodically unveil sales in the spur of the moment that have great value."

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