Lower airfares may be coming, but at what price?
posted at 5:21 pm on February 1, 2016 by Jazz Shaw
Have you had to book a flight lately? If you have, you probably keep track of how much you spend on tickets. Unfortunately I have to fly quite a bit and I haven’t noticed much of a change in prices lately, even as fuel prices have tanked. That’s rather odd because the price of gas at the pumps has plummeted while heating and other associated bills have dipped down a bit. But is that about to change? At least in some cases, the answer might finally be yes. (Yahoo)
Plummeting oil prices have led to falling plane ticket prices — and prospects for an even bigger bonanza of consumer-friendly fares in the coming months, airline industry experts say.
With fuel prices down by two-thirds from the dizzying heights of mid-2014, when oil topped $100 per barrel, the once cash-strapped airline industry is now reaping record profits.
Increased competition also have helped coax down once stubbornly high fares, the experts say.
“We’ve seen typical domestic prices drop about 14 percent over the past year,” Patrick Surry, chief data scientist at Hopper, the airfare prediction app, told AFP.
The first thing to look at here is the scale of difference in ticket prices. In some airline trips, prices may have gone down as much as 14%. Has anyone noticed how much the price of gas has gone down? Compared to only two years ago it’s well below half of what it was at the peak. We’ve discussed this here before, but the airlines have kept their prices jacked up pretty much where they were even as the price of fuel (a major cost factor for the airlines) dropped like a rock. This isn’t a case of the market responding to supply chain costs as it is a public relations stunt. But that’s no doubt due to the fact that there is so little competition left in the airline industry.
But every dollar counts, right? So the peasants should be happy with slightly lower air fares. But at what cost? As one recent report shows, there is a downside to continued cheap oil.
The price of oil has dipped below $30 a barrel.
It’s all good, right? One big boost to the economy? Well, not so fast. It’s also a symbol of a crash. In West Texas, $30-a-barrel oil means a deepening economic disaster.
To oil field consultant Mike Rasco, a drilling contractor’s parking lot filled with unused drilling rigs symbolizes the American oil and gas industry going broke. In just the last year, more than 900 rigs were idled. The U.S. total, down 60 percent.
Each rig represents lots of people out of work, Rasco said. “Your basic crews for the rig itself, you’ve got 20 people without a job.”
Read that report in full. The oil industry is a very, very competitive one, unlike the airlines. They need to slug their way through this oil glut and they will, but in the short term we’re losing jobs and investment capital. The point here is that the airlines are enjoying some salad days which they don’t really deserve. The answer to such problems is never more government intervention because that road of good intentions generally leads to Hell. But we definitely need more competition in the airline industry. Sadly, the entry cost for such a venture is insanely high, keeping a lot of potential competitors on the bench.
What’s the solution to this puzzle? I wish I had one, but nothing comes to mind.