You may have missed the news last night, and it was by design. At 9:41 p.m. (EST) American Airlines' parent AMR (NYSE: AMR) announced that it was hiking its airfares. The amount wasn't much -- $5 on domestic round-trip flights and twice that sum on international treks. Still, if you ever wanted to sum up the myriad of problems with the airline industry, that single event pretty much says it all.
Long after the business sections of many newspapers have called it a day, while the rest of the media world was distracted by the Democratic Party nomination in Boston, AMR was trying to slide a seemingly inconsequential fare hike filing under the reporting radar.
That's telling on two fronts. First, you have a sorry sector where a modest fare hike is announced in the first place. Playing "Mother, May I" in whispered tones is pathetic. Do you think that Hershey (NYSE: HSY) would issue a press release if its chocolate bars were going up in price by a nickel? Of course not.
But that leads to the more troubling aspect of all this. Like a chain, airline companies are as weak as the cheapest link. If a company hikes its fares and just one company chooses not to follow, they are all left with little choice but to revert back to their lower rates. Yet if a single company declares a sale, they all have to follow suit if they want to load up their planes.
Companies conspiring to keep prices high is called collusion. What do you call an industry in which the companies conspire to keep prices low? Orchestrated stupidity. That's why the major airlines are doomed. AMR can pin the hike on the rise in jet fuel, but we know better. This is AMR begging, on bended landing gear, for you and I to give it a shot at losing a little less money.
I have yet to see how AMR and its cost-riddled peers such as Delta (NYSE: DAL), Continental (NYSE: CAL), and UAL's (OTC BB: UALAQ) United will be able to compete against the low-cost carriers such as Motley Fool Stock Advisor recommendation JetBlue Airways (Nasdaq: JBLU). Even the companies that have prided themselves in their rock-bottom operating efficiency such as Southwest (NYSE: LUV) have had a rough go of it lately.
AMR, burning the midnight oil in issuing its latest fare hike, isn't being bold. It's just taking the lead in flawed synchronized swimming. That's an appropriate metaphor given the fact that most of the sector's key players are under water financially.
Buy in? No. Just take off.
Will AMR's hike send its rivals scrambling, or will the carrier be left with little choice to kick off another sale once its low-cost peers fail to follow suit? Where are flight rates headed? Where can you find the best bargains? All this and more in the Cheap Air Fares discussion board. Only on Fool.com.
Longtime Fool contributor Rick Munarriz can't recall eating blue potato chips at 30,000 feet before. He does not own shares in any of the companies mentioned in this story.
Terms & Conditions
RSS Headlines
Fool UK