There has been a lot of noise in recent weeks about oil prices and whether or not travelers can expect to see reduced airfares in the more immediate future. In particular folks like Sen. Charles Schumer are questioning why airfares remain high when oil prices have fallen by half since June this year. And I’m sure the fact that U.S. oil prices briefly slipped below $50 a barrel this week (for the first time since April 2009) will only add fuel to the fire.
However, it is important to recognize that, while airlines are more profitable now (profit for Southwest was up 27%, American 87% and United 144% in Q3 2014) and indeed are likely to continue to be profitable this year (IATA projects a $25 billion profit for the industry), this is not all attributable to fuel savings. Ancillary fees have had a large role. For instance, U.S. airlines made nearly $1 billion in baggage fees last quarter.
Fly.com’s Take: Don’t Expect to See Prices Coming Down Anytime Soon
While it is easy to say “Hey, you are making money in new ways, plus some of your operating expenses (i.e. oil) cost less than they were; why can’t you cut us a break on fare pricing?,” there are several reasons why lower airfares are unlikely.
- No business wants to manage on the short term. Oil pricing is very volatile. Just because it is down right now, doesn’t mean it won’t spike back up quickly. Sen. Schumer objects to prices coming down like a “feather” instead of a “rocket,” but reducing airfares at rocket speed is simply unrealistic.
- Airlines often hedge their oil purchasing. As such the cost is fixed for a period of time. Adjusting fares based on market rates when their cost is fixed doesn’t make sense. That said, if oil prices remain low, we could see a major airline try to undercut the competition at some point in the medium term as they unwind current hedges…and this could lead to a price war, which is good for the consumer.
- Fuel is just one cost that goes into fare pricing. If you look at airline operating expenses, you’ll see that they rose 3% this year.
- Just because fares haven’t dropped doesn’t mean passengers aren’t getting additional value. Many airlines are re-investing their profits into providing product improvements, whether it is kitting out planes with Wi-Fi or offering new perks for the various fare classes – including economy.
- Lastly, but most important of all, there is no incentive for airlines to lower prices; demand remains high and planes continue to be packed to the gills.
So what does all this mean?
Fare sales will continue to be a rarity, because if there are very few seats to fill up, there is no need for a sale. Accordingly, if you do see a sale or a particularly low fare, you should act on it immediately. Airfare prices fluctuate, so the deal you have found won’t be available for long.
For the inside track on great airfare deals, follow Travelzoo and Fly.com Twitter feeds, as well as your preferred airlines.
Lastly, start searching as early as possible – the farther out you are from your travel dates, the more likely you are to get a good deal. And remember to be flexible with your travel dates and times. Use Fare Calendar tools to help you determine when is cheapest to fly. You will be surprised by how much of a difference flying one day versus another can have on your wallet.
Featured Image: Airplane over Clouds (Shutterstock.com)
