ATLANTA (TheStreet) -- The first quarter of 2011 may be a defining period in the recent history of U.S. commercial aviation, because it demonstrated that the industry has likely developed a capacity to weather sudden and dramatic cost challenges.
As fuel prices rose rapidly during the quarter, airline fares increased along with them, in "an unprecedented display of pricing discipline in this industry, to make sure we're getting the price of our product covered," said Delta(DAL_) President Ed Bastian at last week's J.P. Morgan transportation conference. "We've had eight [fare] increases since the start of the year, four of those led by Delta."
At the conference, both United(UAL_) CEO Jeff Smisek and US Airways(LCC_) US Airways President Scott Kirby proclaimed they had never seen anything like it. The industry has had "a round of price increases that has been faster than I've seen in 16 years in the industry," Smisek said.
Kirby noted that "the last six to eight weeks have given us one really good data point that the industry has restructured." After oil prices began to rise, "the industry responded more aggressively than I have ever seen," he said, adding that industry earnings this year are likely to be similar to down only slightly from last year. The industry made about $2.3 billion in 2010, reversing a year-earlier $3.2 billion loss.
Historically, airlines as a group have been unable to move quickly to recoup lost revenue because someone always held out, limiting the scope of fare increases. In the early 1990s, floundering, bankrupt Eastern kept fares low as it spent its creditors' money. In the middle of the last decade, Southwest(LUV_), protected by wise fuel hedging at a time when few competitors had capital to allocate to hedging, resisted efforts to boost fares.
Those days appear to have ended, not only because the top seven airlines are financially healthy, but also because the three low-fare carriers -- soon to be two low-fare carriers following the Southwest/AirTran merger -- have generally signed on to more rational pricing.'
As fuel prices rose rapidly during the quarter, airline fares increased along with them, in "an unprecedented display of pricing discipline in this industry, to make sure we're getting the price of our product covered," said Delta(DAL_) President Ed Bastian at last week's J.P. Morgan transportation conference. "We've had eight [fare] increases since the start of the year, four of those led by Delta."
At the conference, both United(UAL_) CEO Jeff Smisek and US Airways(LCC_) US Airways President Scott Kirby proclaimed they had never seen anything like it. The industry has had "a round of price increases that has been faster than I've seen in 16 years in the industry," Smisek said.
Kirby noted that "the last six to eight weeks have given us one really good data point that the industry has restructured." After oil prices began to rise, "the industry responded more aggressively than I have ever seen," he said, adding that industry earnings this year are likely to be similar to down only slightly from last year. The industry made about $2.3 billion in 2010, reversing a year-earlier $3.2 billion loss.
Historically, airlines as a group have been unable to move quickly to recoup lost revenue because someone always held out, limiting the scope of fare increases. In the early 1990s, floundering, bankrupt Eastern kept fares low as it spent its creditors' money. In the middle of the last decade, Southwest(LUV_), protected by wise fuel hedging at a time when few competitors had capital to allocate to hedging, resisted efforts to boost fares.
Those days appear to have ended, not only because the top seven airlines are financially healthy, but also because the three low-fare carriers -- soon to be two low-fare carriers following the Southwest/AirTran merger -- have generally signed on to more rational pricing.'
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