Airline tickets price drop?

By | Category: Travel rumblings
the fuel surcharges we still pay help airlines fly more profitably into the sunset

the fuel surcharges we still pay help airlines fly more profitably into the sunset

You’ll have noticed that fuel prices have dropped. The price you pay to fill your car with petrol or diesel is at least 6% cheaper than a while ago even allowing for the decline of sterling against the dollar – the currency in which oil and aviation fuel is priced.

But why have we had no reduction in airline ticket prices to reflect that drop?

Most airlines charge hefty fuel surcharges – thought not Ryanair – and these still remain.

Three weeks ago, Tony Tyler, of International Air Transport Association (IATA) gave an interview to the Canadian newspaper – the Globe and Mail – and said, “Prices for aviation fuel lag the price of oil by about a month and many airlines have hedged their fuel costs, but competition and consumer pressure should lead airlines to reduce their fuel surcharges.”

So far no movement despite the fact that prices have dropped by 15-20% since the turn of the year. In the last two weeks according to IATA it has gone down 7%. I’m sure you have been deafened by one airline after another shouting how loudly their airline ticket price drops have been. In all, IATA expects airlines to save $7 billion on fuel costs this year.

IATA seems to be misplaced in believing competition is likely to cause a price drop otherwise it would have happened. My bet is that since there is no public outcry, airlines are hoping they will keep those surcharges going a bit longer and they can improve their profits. But if one airline breaks ranks,  others will have to follow.

easyJet’ announced profits, yesterday, up 21% yet said that the outlook for the coming year was largely positive, although it warned that costs per seat would increase by approximately 2.5% due to rising airport, navigation and maintenance charges. This is despite easyJet saying that  an expected fall in fuel prices could drive costs down by as much as £22m over the next six months.

Some airlines might be locked into higher prices because they will have hedged their aviation fuel price. But they will still have to drop prices if others do.

In some cases fuel surcharges are making up 40-50% of the entire fare. The airlines were fast enough to raise them when they were hit by rising costs; they are showing themselves reluctant to drop them.



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