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Thread: Southwest Airlines raises fares to cover jet fuel costs

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    Default Southwest Airlines raises fares to cover jet fuel costs

    from an investment board ...

    " Case in point - Southwest airlines just raised the cost of a typical ticket from $120 to $440. Deflationists would argue that lack of demand will force the cost of the ticket back down. Not quite - either people pay the higher cost or the jet service in question simply ceases. SWA is not going to lower fares below cost.

    It would take a massive worldwide economic slowdown to get the price of oil back down to where that airline ticket is $120. But who knows if there will even be that much demand for air travel by then. Until that happens, I have to assume continued inflation. After all, SWA airline tickets are priced in US dollars. "


    I would argue that SWA being forced to massively increase the price of its plane tickets is part of a much larger 'iceberg'. Many companies have been able to avoid the full effects of rising oil and commodity prices because they had in place fixed price supply contracts and/or had previously purchased huge inventories at much lower prices. Now that those below market contracts are expiring and those huge inventories bought at low prices are being used up and must be replaced, these companies will have no choice but to significantly raise retail prices to cover their actuall current costs.

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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    The highest fare charged on any SWA route is $319, up from $299.

    Your data is dead wrong. Check for yourself.

    SWA is offering discounted fares on many routes for under $139.

    I suggest not reading that investment board any more. My ex was a SWA flight attendant, as as nasty as she could be, SWA still rocks.

    You can fly from Chicago to almost anywhere in the lower 48 for $99 or less. Chi-town to NYC is $80. Burbank to Vegas - $44. Palm Beach to Philly - $80. Chicago to Orlando - $94.

    southwest.com

    On the other hand....
    Last edited by Charlatan_Valentine; 07-04-2006 at 04:18 AM.

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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    Quote Originally Posted by Charlatan_Valentine
    The highest fare charged on any SWA route is $319, up from $299.

    Your data is dead wrong. Check for yourself.

    SWA is offering discounted fares on many routes for under $139.

    I suggest not reading that investment board any more. My ex was a SWA flight attendant, as as nasty as she could be, SWA still rocks.

    You can fly from Chicago to almost anywhere in the lower 48 for $99 or less. Chi-town to NYC is $80. Burbank to Vegas - $44. Palm Beach to Philly - $80. Chicago to Orlando - $94.

    southwest.com

    On the other hand....
    http://www.wolfatthedoor.org.uk/
    Sorry^^^I know FOR A FACT, they have fares higher than $319. I've used SW to go to Hawaii
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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    Quote Originally Posted by JustJayda
    Sorry^^^I know FOR A FACT, they have fares higher than $319. I've used SW to go to Hawaii
    Flights booked to HI on SWA reservations are operated by ATA, not SWA. No SWA jets go to HI. If you flew a 737 SWA jet (the only planes they fly) to Hawaii, I'm curious where you stopped to refuel.

  5. #5
    Jay Zeno
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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    Quote Originally Posted by Melonie
    Many companies have been able to avoid the full effects of rising oil and commodity prices because they had in place fixed price supply contracts and/or had previously purchased huge inventories at much lower prices. Now that those below market contracts are expiring and those huge inventories bought at low prices are being used up and must be replaced, these companies will have no choice but to significantly raise retail prices to cover their actuall current costs.
    I read somewhat of the same thing in a Frontier Airlines magazine a while back, except of course, they didn't say "significantly."

    But just for chuckles, I picked a couple random-date flights on Southwest out of Denver, which is not their hub, and I couldn't make them come up over $320, flying to New York and Orlando. I think your source is confused, Mel.

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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    Quote Originally Posted by Jay Zeno
    I read somewhat of the same thing in a Frontier Airlines magazine a while back, except of course, they didn't say "significantly."
    I checked the SWA board on cheapflights.com. I saw a blurb about raising fares from earlier this year, but were talking an extra $10/flight, not nearly quadrupling the price. Other low cost carriers are doing the same.

    http://news.cheapflights.com/airline...west_airlines/

    I also may add that SWA has added some new cities (most notably Denver) to its itinerary list recently and with that kind of expansion, you're likely to see a bump in prices.

    I think your source is confused, Mel.
    Or they're trying to start a bunch of panic.

    Mel, you wouldn't have a link to this board would you? I'd like to see the discussion that ensued after this was posted.
    Former SCJ now in rehab.

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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    There is no way they just upped prices from $120 to $440.
    I heard a few months ago they upped all prices about $10-20 like all the other posters pointed out. But $400 for a SW ticket? Their hold shtick is being a discount carrier.



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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    Im pissed. I noticed this increase a few weeks ago in early June. I looked to book tickets home which are usually $49 one-way and now it $91 each way. WTF!? The price jump is about an extra $100. I could do alot more with a hundred bucks.
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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    Don't worry you all - the government will keep inflation down by removing airline ticket costs out of the formula like they do fuel, housing, etc.

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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    What do you mean like raise the price of other goods instead?
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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    I'm not going to argue or nitpick over just how much Southwest has raised fares recently. Admittedly the investment board source probably exaggerted or picked a worst case example. Irregardless, the important point that I took from the investment board post is that there are limits to the supply and demand equation. As the investment board poster said, even if the recent Southwest ticket price increase cause a slackening in demand for their airline tickets, Southwest is still stuck between a rock and a hard place due to jet fuel, as well as employee labor and benefit costs being what they are. Thus unless Southwest is volunteering to join other US based airlines that are already in bankruptcy, the lowest price that they can possibly charge (on the average) and still remain in business is still going to be significantly higher than it used to be when Southwest was being supplied jet fuel under a long term fixed price contract (which has now expired). True, Southwest may choose to offer a below-cost fare to certain popular destinations to maintain market share, but on the average those below-cost fares have to be made up by charging even higher fares to other destinations.

    The point being made on the investment board was that the law of supply and demand stops working when only very few customers can afford to pay a price for a product / service which actually exceeds the costs of manufacturing that product / providing that service. Southwest's large percentage increases in ticket prices were cited as an example that if Americans want to continue flying that they are at some point going to be required to pay enough to cover the actual costs of the flight. If this results in a large percentage of Southwest's former customers no longer being able to afford to fly, which in turn results in half-empty Southwest jets, Southwest simply can' t decide to reduce ticket prices below their costs in order to keep the seats full and still remain economically viable.

    The same exact point can be applied to WalMart's Chinese import products (linked to the US dollar exchange rate), pizza deliveries (linked to gasoline prices), beef and beer (both linked to the cost of corn/ethanol) etc. When prices for these things must be increased to cover higher actual costs, causing a drop in sales, American consumers have nowhere else to go to find more affordable options - because the supplier is not going to deliberately operate at a loss forever in order to retain market share.

    What do you mean like raise the price of other goods instead?
    Deo is implying that the gov't's Consumer Price Index and other official figures utilize formulas and adjustment factors and exclusions and substitutions which arguably result in a much lower CPI number than is actually felt by an average family's pocketbook. As a specific example, for several years the CPI has been heavily weighted towards the cost of renting an apartment (while rental prices held steady) and lightly weighted towards housing (while housing prices were skyrocketing). Now that the economy has reversed course, with housing prices stagnating or falling but rental prices quickly starting to rise, the gov't is in the process of changing their formula so that rents won't count as much (because rising rents would cause a rising CPI). Deo is implying that, in the same manner, if airline ticket prices begin to skyrocket, the gov't may simply do the same thing and exclude air fares from their CPI statistics, substitute cruise ship fares instead of air fares, or some such juggling act to prevent rising airline ticket prices from causing the CPI to go up a lot. The gov't of course has a vested interest in keeping the published 'official' CPI index from rising as much as possible because a ton of gov't programs / expenses, from Social Security checks to TIPS bond interest payments to gov't employee pay raises are tied to the 'official' CPI number.
    Last edited by Melonie; 07-04-2006 at 12:02 PM.

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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    slightly off topic..
    One of the amazing things about southwest is compared to other airlines they avoided the high jet fuel prices by buying in advance. Well seems everything must end.

    One of the reasons for profitability is Southwest's reliance on fuel hedging. Almost since its inception, Southwest has purchased fuel options for years in advance to smooth out fluctuations in fuel costs. Southwest substantially increased its hedging in 2001 in response to projections of increased crude oil prices. The use of these hedges helped Southwest maintain its profitability during the aftermath of the September 11, 2001 attacks and the oil shocks related to the Iraq War and later Hurricane Katrina. As of 2005, Southwest is currently paying 50% of the market price for its fuel; however, that number will increase as hedges from 2001 and 2002 expire and new hedges at higher prices take effect. Southwest has hedges of varying percentages and prices in place through 2009.

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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    ^^^ not off topic at all. Southwest's 'layered' jet fuel futures contracts were exactly what the investment board and I were commenting on. It should also be pointed out that, while Southwest was lucky in buying so much future jet fuel supply as a hedge, these futures contracts cut both ways. Thus if Southwest decides to buy 'replacement' jet fuel futures contracts at current market prices, and if the world economy then tanks allowing spot market oil prices to pull back, if Southwest's ticket sales tank etc. such that they don't burn as much fuel as they planned to etc., Southwest is still legally obligated to take the amount of fuel they have contracted for at the agreed price. This can potentially translate into HUGE financial losses.

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    God/dess Deogol's Avatar
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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    I was fuel hedging before Katrina. I took one look at that sucker and filled up my fuel containers the night it hit. While everyone else was grouching I was burning 2.20 gas... for a while.

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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    ^^^ same here ... in fact I advance purchased 1000 gallons of home heating oil the day after Katrina hit, which saved me quite a bit of money over last winter. However, this year I won't be so lucky, which is why I just bought a new chain saw and am already cutting and stacking lots of wood for next winter (I figure I'll need 12-14 cords). Unfortunately, when it comes to jet aircraft, there isn't any other less expensive fuel to switch to !

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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    Quote Originally Posted by Melonie
    Unfortunately, when it comes to jet aircraft, there isn't any other less expensive fuel to switch to !
    ^ Not exactly true.

    A jet fuel comparable to Jet A or military JP 8, but derived from at least 50 percent bituminous coal, has successfully powered a helicopter jet engine'

    "The project now targets coal-based replacement for existing fuels with the hope that this will interest both commercial and military users."

    http://www.sciencedaily.com/releases...0327214605.htm

    "The US military's foray into the alternate fuel market could spell relief for US commercial airlines who have seen their fuel bills double since 2001"

    http://www.planetark.com/dailynewsst...7086/story.htm

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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    ^^^ I think they would have some trouble delivering 1,000,000 gallons of jet fuel to Southwest every day. I also suspect that the pricing might be problematic in the absence of continuing research grant money.

    I don't want to reopen this particular Pandora's box. Whatever the feasibility and true economics of alternative liquid fuels might turn out to be 1-5-10 years from now, it doesn't help Southwest's rising fuel cost problem, rising ticket prices, and falling ticket sales this quarter. It won't help Southwest's declining profits reports and falling stock share values next quarter. And it certainly won't bring back $49 one way commuter flights !

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    Member ~Nikki~'s Avatar
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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    ^ Maybe and maybe not, however the point is that there are alternatives and quite a few in the military and scientific communities do not agree with your assessment.

    First you claim (with no source link) that SouthWest had increased their prices by several hundred % per ticket when the real story is that they increased only by $10-$20 per ticket in most cases. Then you said that that was zero alternatives for jet fuel, which is also false.

    Other people corrected the first false claim you made in this thread and I corrected the second false claim you made here.

    I am not going to get into another back and forth debate with you. I added what I knew about this subject and included links that support that knowledge.

    Enough said

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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    I didn't research it but wonderred how Southwest got away with raising $300 the price of a ticket. $300 times 100 seats is 30,000 dollars MORE PROFIT per run. Where do I sign up for that return>? i knew it was impossible... Give me 1 plane and I retire next year!

    Mel, how is that error irrelevant to the point? It DOES cost more to move people from point A to B now, so the cost has to go up a few percent (seems like about 10 on average...not too bad considering fuel went up about 30).

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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    Quote Originally Posted by proMarket
    I didn't research it but wonderred how Southwest got away with raising $300 the price of a ticket.
    They didn't.
    Prices are up about $10-20.



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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    Thanks HK, that's what I understood too. My point is had they done it (and gotten away with it retaining customers and not being headline news for price gouging) I'd like to invest! And that such an error puts the entire premise of the original article into question

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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    Quote Originally Posted by proMarket
    Thanks HK, that's what I understood too. My point is had they done it (and gotten away with it retaining customers and not being headline news for price gouging) I'd like to invest! And that such an error puts the entire premise of the original article into question
    I'd like a piece of that type of hike too!



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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    yeah well, I don't know where y'all are flying into and out of, but an advanced booked round trip from upstate NY to CA is now almost $500. Six months ago it was in the $300's. Tiger's Milk just posted at her former $49 one way commuter is now $91. Maybe the LA to Vegas fare or the Chicago to Orlando fare has only gone up $10, but this is not true of all destinations and it's not going to become true no matter how many times it gets repeated. What's probably happening is the 'unpopular' destinations that Tiger'sMilk and I are apparently flying from are being charged more than the average increase in jet fuel price, to make up for the fact that some ticket prices to very popular destinations haven't been increased very much for fear of losing too much market share to other discount airlines. This also fits ProMarket's point that jet fuel costs have gone up 30% in the last 6 months in terms of overall average.

    Back to the original point, even at $482 plus taxes and fees, Southwest is still the least expensive option for getting from upstate NY to California by air - so there's zero chance that this fare is going to ever get cheaper. But if upstate NYers want to get to California, the least expensive option now costs them about an extra $200 or 44%. Same is true of tickets from wherever TigersMilk is flying from now costing an extra $42 or 46% more than it did 6 months ago, with Southwest undoubtedly still being the least expensive option from that location as well. Some upstate NYers and some people from wherever TigersMilk is flying from will be able to afford / justify paying the higher fares - other people will probably to either use a less expensive form of ground transportation, or simply not go.

    As to the impression that JP800 coal based jet fuel is really a practical alternative, at this point in time JP800 is a very expensive laboratory curiosity. IMHO coal conversion technologies are one of the better future options for meeting liquid fuel needs, and have the potential of eventually being the most cost competitive option after oil. But JP800 is certainly nowhere near the point today where Southwest airlines could turn to them as an alternate fuel supplier, regardless of cost (which was undoubtedly over $1000 per gallon - paid for by the US gov't research grants a.k.a. our tax money), because total production to date couldn't fuel one single jet airliner flight.

    ""We do not have much doubt now that we can do this," says [Penn State Professor] Schobert. "We have a lot more to do and it will be expensive, but there is not much doubt that it will work."

    The U.S. Air Force Office of Scientific Research funded this work. The U.S. Department of Energy is also funding some of the ongoing research." from

    " So far the Penn State project has produced 500 gallons of fuel in a pilot plant operated by Intertek of Warren, Pa. The Penn State researcher would now like to produce about 4,500 gallons, or about 100 barrels, of the fuel for future testing by the Air Force and others." from
    ~
    Last edited by Melonie; 07-05-2006 at 06:29 PM.

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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    Quote Originally Posted by Melonie
    ...Maybe the LA to Vegas fare or the Chicago to Orlando fare has only gone up $10, but this is not true of all destinations and it's not going to become true no matter how many times it gets repeated. What's probably happening is the 'unpopular' destinations that Tiger'sMilk and I are apparently flying from are being charged more than the average increase in jet fuel price, to make up for the fact that some ticket prices to very popular destinations haven't been increased very much for fear of losing too much market share to other discount airlines...
    I don't know the situation as to flying out of LAX, but at Burbank(or Bob Hope Airport, as it is now known), JetBlue just started one flight to Vegas and one return flight each evening sometime this May. While this isn't much competition for Southwest, it's more than they've had to contend with at this airport for a number of years, which has to be exerting some downward pressure on their pricing there. And should I have to fly, I'm going to fly out of Burbank or one of the other regional airports, any one of which is very much less of a royal pain in the rump than LAX!

    I checked the Burbank-Vegas pricing at JetBlue's website, and if you purchase tickets three or four weeks in advance, including taxes, etc., it's approx. $49 each way, so one Benji, round-trip. If you're in a big hurry to get to the Strip, the pricing rises to approx. $89 each way, an increase of roughly 80%.

    The lowest round-trip for Burbank-NYC(JFK) was a total of approx. $420, and one of my cousins just flew there three months ago, but she had some kind of $99 promo fare from JetBlue.

  25. #25
    Jay Zeno
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    Default Re: Southwest Airlines raises fares to cover jet fuel costs

    Quote Originally Posted by Melonie
    yeah well, I don't know where y'all are flying into and out of...
    Denver. Hub for United, hub for Frontier. Southwest recently started flying out of there, so competition's a little fierce, so you'd expect prices to be competitive. However, I wouldn't say that Denver is a model for what's going on in the nation any more than upstate New York is.

    Today's expensive laboratory curiosity can be tomorrow's cheap commodity. Look at microchips, industrial gems, and artificial rubber. It can also be tomorrow's market flop. We'll see. But with fuel prices soaring and having its effect on everything - commuting, airlines, trucking, all your basic transportation - it leaves market possibilities open for alternatives. Maybe.

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