Airline stocks advance while performance declines

Demand for airline travel has fallen for the last 13 months, but experts think the drop has finally bottomed out: “[I]nvestors bet the falloff in demand had reached a trough, with no where to go but up,” The Wall Street Journal reported earlier this week. In response, stocks prices are up slightly. Bloomberg’s U.S. Airline Index grew 4%, a ten-year high. Year-over-year traffic is still declining, but not as rapidly as it has been (At United, for example, traffic fell 12.5% in May and 7.5% in June, but only 4% in July.).

This is good news for those who hold airline stocks, but for the rest of us, the news is less uplifting. Fuel prices are down, but beginning August 14 American will raise its checked-baggage fee to $20 for the first item and $30 for the second. This fee hike puts American in line with Continental, Delta, United, and US Airways, all of which have recently increased fees. You can save $5 from the latter four airlines if you pay online, but American doesn’t offer that discount. These fees bring in big revenues for airline companies: In the first quarter of 2009 alone, US air carriers charged $566 million in baggage fees — more than four times what they collected in the corresponding period in 2008 (the major airlines started instituting these new bag fees later in the year). You can avoid bag fees by flying Southwest and JetBlue, but these low-cost airlines may not always fly exactly where you want.

More upsetting is that the price hike comes shortly after the Bureau of Travel Statistics reported that airlines overall on-time performance has decreased.

The domestic on-time rate for July was 76.1% overall. (Compare that to September 2002, the most punctual month in the last 15 years, when nearly 88% of flights came in on time. Hawaiian and Alaska were on-time the most, with 93% and 85% respectively. Coming in last were Comair and Frontier, with 68% and 60%. The stat that surprised me most was this one: On average, airlines canceled only 1.5% of their domestic flights. I might be unlucky, but that number feels like it’s been higher for me.

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