From Today In the Sky:
Airfares are almost 20% lower this year than they were in 2000. That’s bad news for the airlines, considering the cost of jet fuel has more than doubled during that same period. Fares are expected to continue their slow rise this year, but “will probably continue to rise by only modest increments,” according to the Christian Science Monitor. The paper says passengers can thank Southwest and its well-documented “Southwest Effect" for that. "Given how big Southwest is, they're a pricing leader, and they'll continue to keep [downward] pressure on airfares," says Helane Becker, an airline analyst at the Benchmark. But some say that the only reason Southwest can keep a lid on fares is because it has 75% of 2006 costs for jet fuel hedged (locked in at preset prices that are currently lower than market rates). Aviation expert Michael Boyd of the Boyd Group predicts that things could turn around in a hurry once the airline's fuel hedges start to run out between now and 2009. "They're living on borrowed time, and they know that," Boyd says about Southwest. "The Southwest model today doesn't work unless someone's paying 30% of your fuel.
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