Third-Quarter G.D.P. Rose 3.5% And More On Airline Prices

Click here to read the NY Times story by PATRICIA COHEN. The news, however, is mixed. There are good signs and maybe some signs of concern mentioned in the article. Here is an excerpt:

"Unlike the seventh game of the World Series, the debate over the economy’s strength sometimes seems like a playoff competition that goes on forever between skeptics and believers. But on Thursday, the boosters won at least a temporary victory with a government report that estimated the nation’s economic output rose at a healthy 3.5 percent annual rate in the third quarter.

After an even faster pace of growth in the spring, the higher-than-expected advance in gross domestic product — a measure of all the goods and services produced in the United States — was driven by gains across the board, bolstered by an unusual burst of military spending and a more favorable trade balance.

“This is the strongest six-month interval we’ve had in 10 years,” said Carl R. Tannenbaum, chief economist at the Northern Trust Company. “The pace of the expansion has clearly increased.”

 While the G.D.P. report is mostly a look to the past, markets were generally cheered by the latest economic news, which also included an upswing in consumer confidence and further evidence from weekly unemployment claims that the labor market is on the mend. Bond prices barely moved as the Standard & Poor’s 500-stock index rose 0.6 percent to 1,994.65 and the Dow Jones industrial average increased more than 221 points to close at 17,195.42."

Now for airline prices. Last week I posted about how fuel prices were down yet airlines were not lowering their prices, which might indicate that the industry is an oligopoly. But this week there was a conflicting report. See International Low-Cost Airlines Drive Transatlantic Fares Into The Ground by Grant Martin of Forbes. Excerpts:

"If you’ve been wondering why airfare to Scandinavian countries has been so inexpensive for the past few seasons, you have one particular airline to thank: Norwegian Air. For the last year, the self-described low cost carrier has expanded aggressively across the globe, and as a result of the new low fares they brought into the United States, domestic carriers have lowered their prices to compete. These days, a ticket from San Francisco to Copenhagen with a layover in London can often be cheaper than a sole ticket from San Francisco to London.

Norwegian Air gets away with charging rock-bottom prices by taking advantage of low operating costs and charging passengers via an a là carte model. Passengers who book air passage on the airline get just that; baggage, seats and food all cost extra. Conversely, a legacy airline such as American, Delta or United usually provides all of that bundled together with their international fare."

"Norwegian’s popularity has grown so much that they’re trying to expand into different US markets, but complications with permits and strong resistance from the legacy airlines have caused delays.

While Norwegian continues to address its teething problems, other airlines have grown and replicated their success. Just last week, Wow Air, an Icelandic low cost carrier announced service to the east coast of the US for as little as $99 one-way. Lufthansa, the flag carrier of Germany, is also working on the launch of an international low cost carrier."