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As Oil Marches Towards $100 a Barrell, Air Fares Follow
Published by AirlineFanatic | Filed under Uncategorized
The Wall Street Journal is running a piece today about the recent round of fare increases across the airline industry. American carriers unfortunately bare the brunt of this price increase because oil is priced in dollars. As the US dollar falls in value against other currencies around the world, even if the price of oil remained stagnant, the domestic price would continue to rise. That fact combined with increasing demand and limited supply results in a huge spike in prices over the past few months.
Delta is leading the way with these price increases, initiating seven out of ten this year. While most of the time these increases probably wouldn’t have been matched by other carriers, the dramatic increase in the price of jet fuel has pushed even AirTran and JetBlue over the edge.
The practice of raising ticket prices in the face of ever increasing fuel costs is a long and storied one, and one that always rides the fine line between profit maximization and customer rejection of the increase. For the most part, customers are ignorant and don’t understand airlines buy gas too, and even if they do understand it, they want the airlines to eat the loss and still give them $39 tickets each way. This time however, consumers seem to be accepting the rise in prices, but airlines have to watch demand very closely as public acceptance can change quite quickly.
So what happens when oil finally does hit $100 a barrel and airlines continue to raise prices? Customers will eventually reject the high cost of flying and stay closer to home when it comes to vacation time. Business travelers will probably still pony up for most trips, but might see a slight reduction in volume. The carriers most dependent on leisure travel will be hit the hardest probably - the low cost carriers. If that happens we might be looking at consolidation among airlines that today are thriving, instead of those that are aging.
November 13th, 2007 at 2:11 am
[...] AirlineFanatic created an interesting post today on As Oil Marches Towards $100 a Barrell, Air Fares Follow.Here’s a short outline:The Wall Street Journal is running a piece today about the recent round of fare increases across the airline industry. American carriers unfortunately bare the brunt of this price increase because oil is priced in dollars. … [...]