Airfares Head North by Northwest

I know, I know. Can't we ever report good news about the major airlines? Well, not if there isn't any to report. At the risk of appearing to be gleefully piling on after recently lampooning the high-wire act that has become US Airways (Nasdaq: UAIR  ) , here's more bad news from the airline industry: Northwest Airlines (Nasdaq: NWAC  ) is jacking up fees to offset what it says are $70 million in ticketing distribution costs.

Late last week, Northwest said it will start charging a $5 call center fee for tickets booked over the phone and a $10 fee on tickets booked through American and Canadian airports. The airline will also stop absorbing the roughly $7.50 per ticket it is charged by reservations networks, such as Sabre Holdings (NYSE: TSG  ) .

How important is this? Well, the company said that in 2003 distribution payments equaled $180 million. Without those costs, reported net income would have been 73% higher last fiscal year.

Yeah, folks, that's not chump change, and Sabre, in particular, was so annoyed by Northwest's move that it promised to make the airline's fares less prominent on its network and to charge more for selling its flights, according to a Chicago Tribune report. That prompted Northwest to sue, charging that Sabre had no contractual right to discriminate against it in offering flights.

Although Northwest's move might appear a bit like the late-night fare boostAMR's (NYSE: AMR  ) American Airlines thrust on customers just a month ago, there's no conspiracy here. The fact is that airlines have the right to make money.

So let's just call this what it is: The latest move in an industrywide effort to ape low-fare carriers. After all, Motley Fool Stock Advisor pick JetBlue (Nasdaq: JBLU  ) circumvents distribution costs by selling its tickets directly. (Think Dell (Nasdaq: DELL  ) , a Stock Advisor pick as well, for the airline industry.)

I think Motley Fool Income Investor chief analyst Mathew Emmert sums it up best when he says that major airlines will fail. After all, when the big carriers start throwing away the infrastructure they've spent years building, it's easy to believe we've arrived at the end of the airline industry as we've known it.

For more Fool coverage of the descent of the major air carriers:

  • Mathew Emmert's supposedly relaxing vacation turns into an exercise in growing gray hair.
  • US Airways is back talking with pilots after a spat, but the airline still appears off course.
  • Is UAL's (OTC BB: UALAQ) United really sticking it to retirees?
  • American's late-night fare hike is unfair airfare warfare.

Tired of investing in turbulent industries such as the airline sector? Want peace of mind and great returns? Get paid to invest. Take a free 30-day trial of Mathew Emmert'sMotley Fool Income Investornow.

Fool contributor Tim Beyers gets no joy from lampooning the airline industry -- he has family who retired from United Airlines. Tim owns no position in any of the companies mentioned, and you can view his Fool profile here.


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