Tuesday, May 08, 2007

Airfares and Oligopoly

In line with classic oligopoly behavior, the airlines are having trouble making increased air fares stick. The latest attempt appears to have failed when the discount airlines didn't go along.

DALLAS -- Major airlines were in danger Monday of losing ground on fare increases that they attempted over the past week, as the carriers tried to navigate through weakening demand for air travel.

Other airlines also were mostly declining to match the increases, putting pressure on United to retreat.

Continental Airlines Inc. started separate increases of $10 per round trip last week, but by Monday it had pulled back on many routes, especially where it competes with low-cost carriers.

American Airlines, the nation's largest carrier, had matched Continental's increase but also retreated on most routes. US Airways Group Inc. and Northwest Airlines Corp. did the same, and Southwest Airlines Co. never went along to start, said officials who track air fares.

Bainton, the FareCompare.com analyst, predicted that the fare increases would all be rolled back by Monday night

Although there are a lot of airlines in the US, on any particular route, most of the passengers are flown by only a couple of carriers. The same is true for most major airports. Hence, oligopoly behavior.

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