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.

Breaking on Hot Air

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Comments

I won’t fly commercial because I refuse to be sexually assaulted by the Federal Government.

Last time I flew it was on the CEO’s private jet.

ConstantineXI on February 1, 2016 at 5:23 PM

The airlines will now offer a complimentary baby oil so you can squeeze out of your seat and down the aisles.

portlandon on February 1, 2016 at 5:24 PM

The airlines will now offer a complimentary baby oil so you can squeeze out of your seat and down the aisles.

portlandon on February 1, 2016 at 5:24 PM

Complimentary my ass, it’ll be a $30 fee tacked on to your ticket.

ConstantineXI on February 1, 2016 at 5:25 PM

The real, professional airlines, like American, hedge their jet fuel purchases so they minimize the fuel cost fluctuations.

Old Country Boy on February 1, 2016 at 5:29 PM

While government intervention is usually ill advised why not cancel all foreign aid to OPEC nations and buy oil to put in the strategic reserve until we hit say 50 a barrel or a sunset of a year we could also fire 25% of the federal workforce and use some savings on the oil. Or just bomb the Gulf Monarchies oil fields just spitballing

LeeBelieu on February 1, 2016 at 5:33 PM

They offer such a crap product, I’ll now drive 12 hours to avoid using them.

AUINSC on February 1, 2016 at 5:36 PM

Fares never drop out of PHL.

rockmom on February 1, 2016 at 5:36 PM

NY Senator Chuck Schumer says to thank him…

mjbrooks3 on February 1, 2016 at 5:36 PM

The answer is to make it cheaper to have a larger fleet. This allows more flights and an easier rotation of the planes in use. As it stands, backup jets are few and far between.

nobar on February 1, 2016 at 5:41 PM

Pfttttttttt…as soon as the hubs see lower fares they’ll increases the tax on fliers to bring their boon bags back up to full.

Limerick on February 1, 2016 at 5:45 PM

To quote Louis CK, “Everything is amazing and nobody’s happy.”

Isn’t it just awful how much you have to pay… to sit in a chair.., IN THE SKY?

DarthBrooks on February 1, 2016 at 5:46 PM

Here’s one thing to expect…

American Airlines announced today that first, starting in April, they are bringing back free snacks in economy across all flights. In addition, American said that their Dallas to Honolulu flight will feature free meals in economy. This is one of a series of small but welcome consolations after years of the airlines striping away all conceivable amenities except possibly the lavatory.

United Airlines is also restoring snack service and Delta has always retained snack service. Neither Virgin America nor Alaska Airlines offers free snacks at this time but Alaska does provide a free Mai Tai en route to Hawaii.

With the exception of Hawaiian Airlines, it’s been a long time since most airlines offered free meals or even snacks, even on long flights to Hawaii. American Airlines for example hasn’t offered free snacks for 8 years, but today things are changing in the industry, and it looks like Hawaii might see these changes first.

American is also bring back in-seat entertainment…

Del Dolemonte on February 1, 2016 at 5:46 PM

I dont have comprehensive data on air fares, but I did recently purchase an international round trip for about $750, of which $600 was various taxes and airport charges, with the airline only getting $150.

While I know its expensive to run an airport, that seems like a lot. One thing seems true all over the world – if government can tax it, they will.

Longsen on February 1, 2016 at 5:48 PM

…just wait until the Left-Tards start campaigning on higher gas taxes…somebody’s gotta pay for Bernie’s giveaways and Moonbeam’s Bullet Train To Nowhere…

Pelosi Schmelosi on February 1, 2016 at 5:49 PM

The real, professional airlines, like American, hedge their jet fuel purchases so they minimize the fuel cost fluctuations.

Old Country Boy on February 1, 2016 at 5:29 PM

This. Not many people may remember that when fuel prices hit the stratosphere, it was a long time before airfares started to follow. In that case, the hedging worked in our favor.

TB on February 1, 2016 at 5:51 PM

How the Left Ruined Air Travel

Pelosi Schmelosi on February 1, 2016 at 5:56 PM

Lower airfares may be coming, but at what price?

Uh. A lower one. Is this a trick question?

besser tot als rot on February 1, 2016 at 5:58 PM

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.

Go to the gas station in California. You’ll assume oil is still $120/barrel.

besser tot als rot on February 1, 2016 at 5:59 PM

And, FYI, airlines buy their fuel on contract. So, rapid decreases in fuel won’t necessarily have an immediate impact on airline prices unless those contracts are terminating and the fuel can be purchased on new contracts or at spot prices.

besser tot als rot on February 1, 2016 at 6:01 PM

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.

And it will be a crash when those gas prices go back up. The reason the economy is destabilized, as it is, is because of inflation, wrought on this country beginning in 2003, to pay for all these increased subsidies, bailouts, wars and welfare payments, some permanent, such as Medicare Part D and Obamacare. Inflation will return, and so will those higher gas prices, as a result, only the crash this time will probably be the economy as a whole.

rickv404 on February 1, 2016 at 6:02 PM

When taking any flight, I highly recommend an East-Asian based airline if available

DarkCurrent on February 1, 2016 at 6:12 PM

When taking any flight, I highly recommend an East-Asian based airline if available

DarkCurrent on February 1, 2016 at 6:12 PM

Did they ever find that missing jet liner?

CWforFreedom on February 1, 2016 at 6:36 PM

What’s the solution to this puzzle? I wish I had one, but nothing comes to mind.

The easy answer, for those concerned about high corporate profits, is to vote for a democratic socialist. Feel the bern.

rogaineguy on February 1, 2016 at 6:52 PM

Will I still be able to turn off the seat back LCD?

WryTrvllr on February 1, 2016 at 7:18 PM

And, FYI, airlines buy their fuel on contract. So, rapid decreases in fuel won’t necessarily have an immediate impact on airline prices unless those contracts are terminating and the fuel can be purchased on new contracts or at spot prices.

besser tot als rot on February 1, 2016 at 6:01 PM

Exactly. Fare prices will decline as airlines’ fuel hedges roll off, over the course of several months.

Meanwhile, the airline industry is an incredibly capital-intensive, onerously regulated business that has seen bankruptcy after bankruptcy over the last 30 years. A business in which, if you make a tiny mistake in maintenance or operations, your customers perish in flame on national television. Not competitive? Airports are not competitive. The TSA is not competitive– aaaand here we are back at onerous government regulation.

PushTheButtonMax on February 1, 2016 at 7:56 PM

They will come down because it’s this simple.

We are planning a Grand Canyon trip for June 2016, if 4his was last year or the year before, we would have flown into Vegas from Northwest Arkansas and stayed for 5 to 7 days. This year, it’s back to the epic American Road Trip for 14 days. The savings by driving pays for the added nights at a hotels and rented timeshares. It may even afford the opportunity for the Kids and I let Momma have a day by herself at the spa while we sneak to LA and Universal studios. That was out of the question last year. I payed 1.38 for unleaded in NWA last weekend.

They’ll have to come down or they’ll lose passengers to the car. But, surprize, the airline unions are smelling blood with the recent profits and demanding substantial riases. So, if oil stays low and their added labor costs prohibit reduced fares, they’ll be the financial mess they have been in the past.

Get this, you.want to compare American airfare to Europes? Don some price searches for mid week one ways over the pond. I got a 9 dollar one way from Copenhagen to London the other day and dozens of 15 dollars ones after that. Paris to Rome, meh, 25 to 35 bucks one way on their low cost airlines. Even their legacies are in the 60 to 80 dollar range.

TRB on February 1, 2016 at 10:56 PM

From where I live in central Florida (Orlando International Airport area) to most parts of Atlanta is approximately an 8-hour drive for the 500-mile trip.

If you add up the time for leaving early to drive to the airport to make it through security, parking and making it to the gate, flying there plus de-planing in Atlanta, collecting your luggage, obtaining a rental car and driving to your final destination, it is about 6 hours.

I prefer to drive.

Longer trips are more efficient with flying, but I am becoming more and more tolerant of driving, even with Interstate traffic backups.

bugsy on February 2, 2016 at 7:05 AM

Airlines in this country have been losing money almost every year for some 40 years now, but let them get some temporary profits and even supposedly “libertarian” writers complain.

Adjoran on February 2, 2016 at 7:52 AM

The point here is that the airlines are enjoying some salad days which they don’t really deserve.

Every now and then your inner fascist shows up, Jazz. Whether the airlines “deserve” such profits is entirely up to the market. If there is some regulation going on that provides them some crony protection, then let’s argue about killing it. But if it’s just a matter of getting the highest price they can manage out of their customers, stop your whining.

So, rapid decreases in fuel won’t necessarily have an immediate impact on airline prices unless those contracts are terminating and the fuel can be purchased on new contracts or at spot prices.

besser tot als rot on February 1, 2016 at 6:01 PM

And you can bet the fuel companies aren’t going to let them write long-term contracts that hold the price waaay down, in case oil goes back up and they get royally scrod.

GWB on February 2, 2016 at 10:18 AM

Maybe the airlines will offer a free cigarette after your sexual assault…?

landlines on February 2, 2016 at 2:33 PM