After American Airlines reported an 11 percent drop in year-over-year quarterly profits last week, the carrier is considering increasing prices to offset costs. The airline blames the prices on a contract that guarantees in-air staff raises and the rising cost of jet fuel to fly passengers around the world.
To offset flight crew raises and rising jet fuel prices, American Airlines might pass those costs over to the passengers in the form of higher airfare. The airlines-fuel-costs-20180125-story.html” target=”_blank”>Los Angeles Times reports that the carrier is considering increasing prices directly in line with their higher operating line.
In their Fourth Quarter 2017 report, executives for the carrier noted the $31 million drop in year-over-year operating revenue was directly attributed to two causes: increases in labor costs and fuel prices. Last year, American offered flight crews $350 million in raises in 2018 and 2019, while fuel costs jumped over 20 percent in the last quarter alone. As a result, the leadership says that prices are too low and a natural adjustment will be coming.
“Fares are too low for oil prices this high,” Doug Parker, chief executive for American, told investors according to the Los Angeles Times. “Over time, you’ll see adjustments. It takes time.”
The move comes as American follows fellow legacy competitor United Airlines on a strategy of increasing capacity to please flyers. While both are making the move to combat ultra-low cost carriers and avoid a fare war, the combination of increasing costs and reduced inbound traffic to the United States makes for a difficult combination for the Dallas-based airline.
Despite reassurances that American is not interested in competing with other carriers for impacted routes, Wall Street is still showing signs of skepticism over the airline’s direction. At Wednesday’s close, the stock price had risen to 54.32, but was down from their one-month high of over $58.