Southwest Airlines and rival low-cost carrier JetBlue Airways said they plan to increase fares this year to help cover higher fuel costs.
David Neeleman, chief executive officer of JetBlue, said the carrier will consolidate offices, adjust flight capacity on certain routes to better match demand and find new ways to make money, such as a recent decision to sell premium headsets. The airline had its first quarterly loss as a public company in the fourth quarter, and said it will post losses for this quarter and all of 2006.
Low-cost airlines have continued to grow since the 2001 terrorist attacks even as larger, older rivals have cut jobs and grounded planes. The low-cost expansion has held down fares, helping force US Airways, United Airlines, Delta Air Lines and Northwest Airlines into bankruptcy.
"We need a higher average fare for our tickets," Neeleman said. "We need to get another five bucks, or 10 bucks if we really want to make some money."
Southwest hasn't had a quarterly loss since 1991. The airline faces as much as $600-million in higher fuel costs this year because of a reduction in the percentage of its fuel needs covered by hedges, financial instruments used to help flatten price spikes.
"We're going to have to see revenue improvement to cover those fuel costs," Southwest chief financial officer Laura Wright said.
Southwest also is looking for ways to reduce costs and increase efficiency, "but we're pretty lean and you can't get there on the cost side alone," Wright said.
Jet fuel for immediate delivery in New York Harbor has averaged $1.80 a gallon this year, up 30 percent from the same period of 2004. For many airlines, jet fuel has surpassed labor as their largest expense.