This afternoon in the 12:30pm EST domestic U.S. airfare distribution the FareCompare.com proprietary airfare processing system noted significant system wide airfare increase matching activity by United and Continental Airlines. Both United & Continental Airlines raised fuel surcharges to $40 roundtrip — now matching similar increases yesterday by American and Delta — leaving only Northwest and US Airways on the sidelines at this point. These additional surcharges have been added to both leisure and business airline tickets.

It should be noted that the legacy airlines continue to be reticent to increase surcharges on competitive lower cost airline routes, especially on the cheapest leisure airfares targeted at off-peak travel periods.

Continental Airlines has decided to complicate its fuel surcharge structure on many city pairs by specifying different amounts based on a passenger’s departure date as follows:

• $20 roundtrip for travel departing on/before June 11, 2008
• $40 roundtrip for travel departing after June 11, 2008 through August 17, 2008
• $20 roundtrip for travel departing after August 17, 2008

The FareCompare.com airfare processing system also notes a new record for U.S. domestic fuel surcharges in this airfare distribution — both Continental and United Airlines now have a $60 roundtrip fuel surcharge on a smaller number of routes for business travelers and certain less competitive city pairs:

• United Airlines – Y-class airfares are at $60 roundtrip fuel surcharge
• Continental Airlines mid-tier priced airfares on less competitive routes now have some $60 roundtrip fuel surcharges

The bottom line for air travelers is that deals are going to be harder to find in 2008, business travelers and passengers in less competitive cities are going to absorb a disproportionate amount of airfare hikes. There is still some headroom for additional price increases in 2008 – especially if a legacy airline merger occurs.

The only wildcards that may stop this freight train of increases in 2008 are a dip in fuel prices or softening in demand related to 2008 economic projections. At this point there has been no sign of decreased demand based on guidance from a few legacy airlines – most of which have been careful to “right-size” capacity fostering an environment that allows increases to remain “sticky”.

I expect Northwest and US Airways to match over the weekend which has been there pattern in recent increase attempts.

There are 3 domestic U.S. airfare distributions left this weekend (8pm Friday and 5pm Saturday and Sunday) — I will continue to update on any significant matching or rollback activity related to this airfare increase.