Say what you want about America's legacy airlines. Call them inefficient, burdened by debt, at the mercy of the oil companies, or beaten down by the discount airlines. One thing you cannot say about them is that they are colluding on how they price their tickets.
Actually, a bit of collusion -- or refraining from undermining each other, at least -- might not be such a bad thing for the airlines (legal concerns aside, of course). Here's what I'm talking about:
Back in late August, Northwest (NASDAQ:NWAC) decided to "align its distribution costs with those of low-cost carriers." Or more relevant to fliers' wallets, to charge a $5 fee for buying a ticket from one of its call centers and a $10 fee for buying a ticket at the airport. About a week later, rival American (NYSE:AMR) followed suit, charging the same fees for the same services. OK then, so these guys can play nicely together, right?
Not so fast. Flash forward to one week ago, when American upped its ticket prices on round-trip domestic flights by $10. In quick succession, US Airways,Continental (NYSE:CAL), Delta (NYSE:DAL), America West (NYSE:AWA), and Northwest followed suit. Even a few of the discount airlines joined in the fun. Apparently, at least on routes where no one was competing with discount kingpin Southwest (NYSE:LUV), everyone was raising rates in lockstep. It seemed that the airlines were finally going to be able to make a fare increase stick, and get themselves out from under the crushing weight of rising fuel costs -- heck, maybe they could even break even for a quarter. (Stop laughing. Ain't no law against pipe dreams.)
But it was not to be. Northwest changed its mind at the last instant, and pulled its wagon from the rate-hike choo-choo train. It happened so suddenly that as late as Monday, TheWall Street Journal was running a story stating that Northwest had raised its rates along with everyone else. So, faster even than the rates rose across the industry, they came crashing right back down.
As a consumer, your reaction to the collapse was likely "hurray!" Well, sure. Everybody likes cheap tickets. But as an investor, you have to at the same time wonder -- how much longer are any of these companies going to be around to fly you anywhere if they don't at least charge what it costs them to provide their services?
Fool contributors Tim Beyers and W.D. Crotty have been churning out plenty of Foolish commentary on the airline mess in recent weeks. Read all about it in:
Fool contributor Rich Smith owns no shares in any company mentioned in this article.
