Airfares set to keep rising despite price probe

New York, June 23: The cost of international air travel is likely to keep on rising despite a transatlantic probe into possible collusion by some airlines over ticket prices and fuel surcharges, analysts said today.

A joint investigation by U S and UK authorities may make airlines more careful with their pricing and surcharges, but is not likely to stop carriers raising their fares, they said.

''We are likely to see continued fare increases and higher fuel surcharges,'' said Jim Corridore, an equity analyst at Standard&Poor's. ''Obviously, (airlines) are going to be very careful in how they apply those from now on.'' UK authorities have raided British Airways Plc offices in the probe. American Airlines, United Airlines and Virgin Atlantic said they were also involved, although they said they were not direct targets. The U S Justice Department said it was also investigating possible anti-competitive practices in airline fares and cargo rates.

Despite the investigation, international air-ticket prices, already at 6-year highs, look set to continue their ascent, bolstered by limited competition, low capacity increases on most routes and high demand fed by a growing global economy.

The average one-way airfare between 160 international city pairs is estimated to have grown 7.2 per cent in the first quarter of 2006 from 1,666 dollars in the fourth quarter of 2005, according to Prashanth Kuchibhotla, a specialist at American Express Co.'s business travel unit.

International business-class tickets, which are the primary profit drivers for full-service airlines, are estimated to have ended March costing 5.9 per cent more than the end of 2005.

''International (flying) has been one of the few bright spots for the airline industry for the last few years,'' Kuchibhotla said.

''(And) summer is still looking pretty strong.'' A RUSH TO FLY ABROAD Lured by the promise of profit on international routes, and faced with competition at home from discount carriers, major U S airlines such as American Airlines, Continental Airlines and Delta Air Lines Inc. have been shifting focus to international routes.

U S carriers expanded their international capacity, the number of seats for sale, by 5.1 per cent in May, while cutting domestic capacity by 5.7 per cent, according to Air Transport Association data.

This capacity increase has raised concerns about the possibility of pressures on pricing in some markets. But for most part, airfares look set to keep going up, analysts said.

''In those markets where they butt up against each other, we are going to see some pricing competition,'' Corridore said. ''In various markets it is going to be a little bit different.'' Part of the difference is due to the fact that not every airline can fly to every airport, as bilateral treaties often restrict the carriers that can fly between countries.

Meanwhile, airlines that have the rights to fly international routes not only have the opportunity to raise prices but are also faced with the necessity to do so as fuel costs rise.

''Fares broadly -- domestic and international -- are not high enough when compared to costs,'' said Stuart Klaskin of KKC Aviation Consulting. ''They are not really out of line.'' ''We do not believe that this investigation will affect ...

future price increases,'' Calyon Securities analyst Ray Neidl wrote in a research note.

Reuters