Fare hikes could crimp airlines' profit

By Mark McSherry - Analysis

NEW YORK (Reuters) - Recent fare hikes and the weakening U.S. economy could hit U.S. airlines' bottom lines as more companies are requiring their traveling executives to fly economy instead of business class.

In times of economic strife, companies will do all they can to keep profitability levels steady and margins intact. Cutting costs on executives' travel and entertainment (T&E) -- is often the first step companies take.

While bookings for major U.S. airlines have held up well through the recent spate of airline industry fare hikes, analysts warned that companies are beginning to choose economy flights on some routes to save money.

For airlines, this is another blow as they battle unrelenting increases in fuel prices and a weakening economy.

"We are seeing some companies that have altered their policy or are in the process of reviewing it ... to say instead of a five-hour business class policy, you have to be traveling eight hours," said Dale Eastlund, a director at the consulting division of Carlson Wagonlit Travel.

"I think that companies are definitely going to feel the pinch ... and the airlines are going to start evaluating which routes they want to continue flying," added Eastlund.

Some carriers like AMR Corp's (AMR.N: Quote, Profile, Research) American Airlines and UAL Corp (UAUA.O: Quote, Profile, Research) have invested heavily in their first- and business-class cabins in hopes of attracting well-heeled business travelers.

The fuel price spike coupled with a steadily weakening U.S. economy has stalled the airline industry's modest recovery from the 2001-2006 downturn. Oil prices, directly related to jet fuel costs, remain around $100 a barrel.