To surcharge or not to surcharge, that is the question. American Airlines, a division of AMR Corp. (NYSE:AMR), announced Thursday that it will increase its domestic one-way flight fuel surcharge by $3. Customers and investors alike may be feeling a bit of déjà vu: the world's largest airline attempted, but ultimately reneged on, a similar move in December.
American's reasoning for the increase was based on a rise in jet fuel prices. The airline summed up the move by saying "fuel prices have continued to escalate, leading to American's decision to re-impose this modest increase in its fuel surcharge." In fact, according to American, every one-cent increase in the price of a gallon of jet fuel leads to an extra $30 million in costs per year for American.
On the surface, this seems like a great cost-cutting move for shareholders. However, I'm not ready to clear this company for take-off just yet. If rising fuel costs are such a problem, it certainly doesn't seem to be influencing the competition yet.
US Airways (NASDAQ:UAIR) has already boldly stated that it has no intention to increase ticket prices. Northwest Airlines (NASDAQ:NWAC), Continental Airlines (NYSE:CAL), United Airlines (OTC BB: UALAQ.OB), and America West (NYSE:AWA) are waiting before making any decisions. And discount carriers, such as JetBlue (NASDAQ:JBLU) and Southwest Airlines (NYSE:LUV), don't solicit fuel surcharges to begin with.
The fog will need to clear before we see if this move will help take American up into the wild blue yonder. While this surcharge increase looks to save American a nice chunk o'change, it could ultimately backfire if competitors don't follow suit. In this age of low-fare Internet sites and cutthroat pricing, a slight increase in ticket prices could leave American stalled at the runway.
Jason Matthews practiced his own victory dance after the Maryland basketball team's big win over North Carolina on Wednesday night. He welcomes your feedback at [email protected].
