Puzzling world of yo-yo airfares

Slowing economy may lead to long-term moderation in prices on some

Michael Margulis is shuffling his bags through the Delta Airlines ticket line at Boston's Logan Airport before jetting off to Philadelphia.

"I'm always trying to find the lowest fare," he says with determination and frustration. "One guy pays $500, and the other only pays $99. It's not fair. You'd think there'd be one simple price."

Mr. Margulis's lament is one increasingly being echoed around the world of air travel these days.

Need a good fare? Wait a week and prices will probably go down. But if they do, buy quickly. They may be going back up again. Soon.

In the world of air travel, prices now seem more flighty than Ally McBeal.

While the cost of tickets has always fluctuated - particularly during heavy travel seasons - experts say there's more volatility today. They attribute it to increased competition from upstart airlines, a lower industry profit margin because of rising fuel costs, and consumer shopping over the Internet, which changes demand hour by hour.

If there's one overall trend, it's that prices seem to be going down - particularly for business travelers. "There's evidence that demand is softening," says Richard Gritta, a business professor and airline expert at the University of Portland in Oregon. "The economy is not growing as rapidly, so rates may stay lower."

So, are they up or down?

Just how unstable prices can be was evident the past two weeks. First, Continental Airlines hiked rates around Memorial Day after reporting near record seat purchases in May. Other major airlines followed suit.

Then, last week, United Airlines led major carriers in cutting summer domestic and international leisure fares by roughly 30 percent. The move was designed to appease summer travelers who had balked at the 4 percent earlier hike.

The promotion, which applies to travel through September and requires ticket purchases by June 18, offers an added discount when friends fly. A roundtrip ticket, for example, from New York to Los Angeles after the June 1 increase would have cost $622. After the sale it was $398.

The recent changes underscore, to a certain extent, how competition can still affect rates in large markets, despite the popular perception that the airline industry is one big cartel. United lowered its fares because its bookings in May were low, forcing other carriers to quickly match it - including Continental.

"When airlines need cash badly enough, they'll lower fares to sell tickets," says Mr. Gritta.

Other forces are at work that could keep prices moderate as well. Michael Stellwag, an airline analyst for the New York investment banking firm Warburg Dillon Read, says several major carriers recently added new planes to their fleets without retiring old ones very quickly.

The result: a lot of empty seats as the summer travel season begins, during which demand is expected to jump 2.5 percent. "This is obviously a good time to buy," says Tom Parsons, editor of Bestfares.com, an Internet travel firm. "If you want to travel later, there's a chance you'll faced higher fares. Then, we'll usually see a good sale around Labor Day."

Still, other pressures could keep prices stable or even cause them to go up, especially in less-traveled markets where there is little airline competition. After three years of record profits, the industry overall is hurting right now, says Aaron Gellman, director of the Transportation Center at Northwestern University in Evanston, Ill. He points to rising fuel costs, declining revenues, and business travelers who are increasingly shopping around to avoid paying higher fares.

Don't forget to shop

All this means prices on some routes will continue to fluctuate, forcing consumers to be as diligent in their comparative shopping as when buying a pair of socks. Some already are.

Rich Hurley of Norwood, Mass., either flies out of Boston or Manchester, N.H., on his monthly trips to Chicago, depending on the best rates. But he still doesn't like the rates.

"I will take advantage of rates going down," he says. "But with all the competition, I would think that rates still would be cheaper. Prices are way too expensive for the last-minute traveler."

Many travelers, though, aren't very adept at shopping around. "Deregulation has made for a more confusing market, and that's where the anger comes from," says Gritta. "There are hundreds of thousands of combinations of fares. And in some markets, they change hourly."

One way to sift through the deals fast is to scour the Internet. Various Web sites post last-minute Internet-only air specials and will search and rank the cheapest flights, says Terry Jones, president of Travelocity, an online travel company.

Eventually, the Web could further empower travelers and force lower rates through competition. "If the use of the Internet goes up to 30 or 40 percent, you bet it will make for a more level playing field," says Gritta.

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