Airline fares shot up again last week after Hurricane Katrina caused a sharp uptick in the price of jet fuel. Our Savvy Traveler, Rudy Maxa, says this is just the beginning . . . and maybe the beginning of the end of at least one major airline.

Once, labor was the most expensive part of running an airline. But suddenly, for most airlines, fuel has become the number one cost. Fifteen months ago, a gallon of jet fuel cost 97 cents. Before Katrina, it was $1.75. Today, it's more than $2.25.

Airlines' budgets have been thrown out of whack, but none of the major, money-losing carriers think they can raise fares high enough to cover the new costs. Why? One word: Southwest.

The airline is consistently profitable thanks largely, these days, to the fact that Southwest hedeged much of its fuel costs. It had the bucks to lock in low prices per gallon months ago. Along with JetBlue, Southwest is the airline the others watch warily, afraid if they raise their fares too much, a low-fare carrier will swoop in and take over their market.

And, increasingly, price is the single largest reason passengers choose a particular airline.

So what do you do if you're United, three years in bankruptcy now? Or Northwest or Delta, both of whom are teetering?

Hey, if I knew, I'd be the CEO of an airline. But one thing is for sure: They must keep raising fares. Maybe only $10 or $20 on every round-trip ticket, once every few weeks. But raise they must. And they still must get smarter about costs, routes and pricing.

The industry can't afford to keep going this way, and the merger of US Airways and America West won't thin out the competition enough. Someone else is going to have to say goodbye.

Of course, this being the airline business, no one will just go out of business. Delta may limp into bankruptcy and hang on for a year or more. But at some point, there will be a merger of Delta and, maybe, Northwest. Or United and Continental. Or American and Northwest or American and Alaska Airlines.

If airlines shut down, that means less of that competition that has kept fares down. So maybe our choice as passengers is this: Pay market price now. Or pay later when there are fewer airlines and fewer choices.

September 06, 2005