Airfares are expected to soar higher next year, even as the industry sees its profits decline. Airfares will likely continue to gain altitude in the New Year, even as the industry braces for a 40% decline in profits as fuel prices and a weak economy take their toll, industry experts said Tuesday.

International Air Transport Association officials expect airlines worldwide to post an aggregate net profit of $9.1 billion next year, down from $15.1 billion this year, Bloomberg reported. Revenue, meanwhile, is expected to inch ahead 5.8% to $598 billion.

Nonetheless, Wall Street analysts and the American Express Business Travel 2011 forecast predict air fares will rise -- not as a result of the lower profits, but because of simply supply and demand. Carriers will likely keep a tight reign on the number of seats they make available in the new year, and that can drive up the cost per ticket as demand rises, one Wall Street analyst, who spoke on condition of anonymity, told DailyFinance.

Passengers to Pay Like its 2007

The American Express report forecasts that airfares will reach pre-recession levels in 2011: It anticipates that prices for domestic economy-class and short-haul flights will rise between 2% to 9%, depending on the region, while international business-class and long-haul fares grow 3% to 10%, also depending on the region.

Airfares 2011

Higher airfares in 2011 would extend the industry's recovery for a second year. U.S. carriers' airfares have flown up 10% during the first 10 months of this year, while international carriers have seen a 17% increase, according to the Wall Street analyst. For carriers, that's far better than last year, when fares dropped 12% for domestic carriers and 16% for international.

"The drop was due to the industry losing their highest paying passengers, the business class," the analyst explained, noting that the decrease has carried over from late 2008, when the economy and markets took a severe beating and corporate America began to cut back on air travel.

The industry responded by cutting capacity dramatically, but with demand also crashing, it was difficult to maintain fare prices, according to another analyst, Soleil's James Higgins.

Fuel Prices Drive Fares Higher

Operational costs are the main driver of fare hikes. When the cost of fuel, which accounts for roughly 28% to 29% of the total costs, goes up, the airlines pass that on to travelers via rate hikes, Higgins notes. Consumers and business travelers can watch oil prices to get a sense of where airfare prices are likely to go, Higgins says.

Consolidation in the airlines industry also has continued, with Continental (CAL) and United Airlines closing their merger and Southwest Airlines (LUV) and AirTran (AAI) working to wrap up their deal. But in 2011, Higgins doesn't anticipate seeing major merger mania in the industry. "I'm not betting on further consolidation," he says. "After this year, there's not much left but incremental mergers."


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11 Comments

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tvorder

I'm making my last airline flight in a long time. I have to travel to SF for a sick relative, but with the price of these tickets, booked two months ago, it will be a long time before I fly again.

December 15 2010 at 11:29 AM Report abuse +1 rate up rate down Reply
z4rock

We now have the bag guy at the curb makeing more money than the pilots.

December 15 2010 at 10:35 AM Report abuse rate up rate down Reply
z4rock

I suspect the high priced airport concessions are more profitable than the airline.

December 15 2010 at 10:34 AM Report abuse rate up rate down Reply
donnernv

Dawn:
You REIN in the number of seats, jusr as you rein in a horse. Elizabeth II REIGNS as the Queen of England.

December 15 2010 at 10:31 AM Report abuse rate up rate down Reply
1 reply to donnernv's comment
robmerlaw

Don't you love these English-major pseudo-journalists.

December 15 2010 at 10:44 AM Report abuse rate up rate down Reply
z4rock

All the price increases have been going to the TSA and other wastefull Gov spending.

December 15 2010 at 10:29 AM Report abuse rate up rate down Reply
bigtruckerman

I used to fly all over the country after TSA's wonderful hands on approach, I quit and now I drive. I have since seen more of the country then before. Thanks to the gropers!!!

December 15 2010 at 9:30 AM Report abuse rate up rate down Reply
texconn

You have a $40,000,000 airplane, $200,000 crew, $40,000 of fuel/flight, millions of dollars in ground support and administration and people want to fly for practically nothing. The flying public better get used to the cost of flying or take the bus or train.

December 15 2010 at 9:30 AM Report abuse -1 rate up rate down Reply
thomasva6

airline prices are going up because of TSA giving out happy endings.

December 15 2010 at 8:55 AM Report abuse +1 rate up rate down Reply
fred

Suggest they increase revenue by charging extra for not only luggage but also folks that take more than one seat, crazy pet ownwers with animals (no wait; they both should go in the cargo hold, but DO charge extra for both), people with screaming babies/kids (oh hell, throw them all in the cargo hold too at extra cost), people who can't get seated in 10 seconds or less, people who can't get off the plane without blocking everyone for 1 1/2 hours, people with cell phones/BluTooth that are NOT important but think they are, and people who fart and think others don't know they did. The rest of us could fly for free.....

December 14 2010 at 9:54 PM Report abuse rate up rate down Reply
pkatcher

wow more lack of knowledge comments...the TSA NOT the airlines run "security" and the TSA is headed by a ding dong who probably has NEVER flown commercial.

Let's see ALL our congressment and women, the HEADS OF DEPARTMENTS and heads of TSA/DHS fly commercial and SEE if the y fee lsafer because they got scanned, groped proded, removed their shoes and belts , change in pockets and keys..DUH!! by the time these "leaders" react to "threats" the terroorist have changed their methods....WASTED MONEY AND TIME FOR NOTHING!

December 14 2010 at 8:37 PM Report abuse +1 rate up rate down Reply