Crude oil closed at $51.69 per barrel on Friday, the highest gain it’s seen in months, following an extended dip into the forties. While forecasts are for the general trend to be upward, this change is really insignificant. Buyers become either nervous or enthusiastic over the strangest things, and we’ve seen fluctuations bigger than this based on an errant weather forecast. So the upshot is that fuel prices are still at nearly historic 21st century lows, but have the prices for your airline tickets gone down?
Once you’ve all stopped laughing we can pause yet again to wonder why. An editorial at USA Today takes a skeptical look at the business practices of the airline industry and concludes that you shouldn’t get your hopes up. The airlines have used all manner of tricks – largely centered on extra fees they charge based on energy costs – to drive up your bill. And much like the practices of the Federal government, once a new fee is in place you aren’t likely to ever see it go away.
You have to go to a special website to see that domestic carriers are still adding hundreds of dollars in fuel surcharges to the cost of international flights. For example, the surcharge — now recast as a “carrier-imposed surcharge” — for a round-trip flight on United between New York City and London is a whopping $516. That’s more than 40% of the total ticket cost of $1,192.
What’s going on is a demonstration of what most consumers already know: Once a fee goes on, it hardly ever comes off. When the surcharges first popped up, airlines defended them by pointing out that fuel is their single biggest cost — about 30% of what it takes to keep planes in the sky. Now that fuel prices are down, airlines defend the surcharges by insisting that other costs have gone up. Do the surcharges cover fuel, peanuts, airsickness bags, the price of a new Boeing?
The prices aren’t going to go down. Let’s all get used to that idea for the time being. The airlines have you right where they want you and there is no incentive for them to deliver either better quality or more reasonable prices. Of course, not everyone agrees. I see that USA Today ran a companion editorial claiming just the opposite. It’s by someone named Nicholas E. Calio. Oh, wait… Nick is the president and CEO of Airlines for America, an industry trade group. (Wow.. that must be an unbiased opinion, eh?) Well, let’s see his explanation anyway.
Customers ultimately determine pricing, voting with their wallets every day on what they value and are willing to pay for. That is the marketplace at work.
It’s a touching sentiment, sure to pull at the heartstrings of any capitalism loving conservative. Sadly, it’s also complete horse hockey. The invisible hand of the market gets tied behind its back when there is no semblance of actual competition. I just had to shop for airline tickets this week and could find virtually no difference in price for the times and dates I needed to travel. This has been my experience over and over again.
There are so few players in the massive air travel marketplace that they can essentially ignore each other. In terms of what goods and services fliers are “willing to pay for” when shopping, that’s also a joke. The airlines have continually and, in my opinion, intentionally degraded their basic economy services to the point where you feel compelled to pay for the “options” such as an extra two and a quarter inches of legroom in paper thin seats. Ideally they would like to force you into First Class at many times the price just to obtain some level of civilization in flight, though even the “good seats” are nothing like they were in the heyday of air travel.
There is insufficient competition in the airline industry. Unfortunately, there is little incentive for anyone else to jump into the market and the start-up costs make such an effort an impossibility for most who might consider it. There’s room to expand in the luxury market, as Richard Branson proved, but to steal market share on the economy end looks daunting except for very limited, regional carriers. I wouldn’t expect to see conditions change any time soon.