US airfares to fall next year as budget carriers power up

Competition from no-frills carriers such as Spirit will see air tickets get cheaper for both short-haul and long-haul flights with legacy airlines planning retaliation.

An Airbus A380 passenger jet, top, flies past commercial jets at Boston's Logan International Airport. US airfares are set to fall next year. Steven Senne / AP

US airfares are expected to fall in 2017 amid overcapacity and stiff competition between budget carriers and legacy airlines, according to an American Express report on the travel industry.

Short-haul economy fares are expected to drop 3 per cent, while long-haul business-class fares may see a 1.5 per cent decline in the United States, the American Express Global Business Travel report said.

However, higher ancillary fees will help to offset lower fares in North America as airlines continue to look for new revenue sources, the report added.

For months, lower fuel costs have allowed airlines to add flights that would have been unprofitable when oil prices were high. With seats for sale growing faster than the pool of passengers to buy them, fares for US flights have fallen.

In particular, budget carriers such as Spirit Airlines have added cheap service at the hubs of larger rivals and are now adding routes from medium-sized airports.

Top carriers American Airlines and United Continental Holdings plan to fight back by marketing cheap but higher-restriction fares, which partially explains why 2017 may see more price drops.

United is making a pitch to passengers at both ends of the plane – budget fliers and luxury passengers – as it attempts to boost profits.

The airline announced it will sell lower “Basic Economy” fares that do not let buyers pick seats ahead of time and limit them to a single carry-on bag that fits under the seat. They will be the last to board.

The new fares will go on sale in January for flights starting after March, a spokeswoman said.

United hopes the lower fares lure passengers who pick carriers such as Spirit and Frontier on price. Delta Air Lines has already been selling a similar, stripped-down ticket for several years, and American Airlines plans to follow.

Airlines do not generally speak about pricing, but Delta’s basic economy tickets have been about US$10 to $30 cheaper – sometimes more – than regular coach tickets on domestic flights.

Meanwhile, the airline plans to begin a new service called Polaris for premium passengers on international routes next month, and may expand it to domestic flights.

United said it expects those and other changes, coupled with cost controls, will increase profit by $4.8 billion between now and 2020.

Airfares in Europe and much of Asia Pacific are expected to stay flat, with slight increases depending on route and fare class in the Apac region. In Europe, fares will continue to be impacted by weak economy and security concerns.

US hotel rates are estimated to increase 3.6 per cent next year.

Hotel rates in Europe are expected to rise marginally, while they could vary in the Apac region as strong demand in China and India could be hurt by a rise in inventory, according to the report.

* Agencies

Follow The National's Business section on Twitter