iahphx

So for the past dozen or so years, jet fuel has been crazy expensive. What used to cost airlines something like 65 cents/gallon, started costing $3.00 gallon. The changes this brought to the industry were profound. In the USA, it led to airline bankruptcies and the mean, lean (and generally no frills) airlines we have today.

But all that seems to be changing. Very suddenly.

Everybody seems to be focused on the ebola scare, but the collapse in oil prices will probably have far greater repercussions. It may change the car you drive (have you noticed have pump prices are in freefall the past week?). It will most certainly change the nature of air travel.

The first result (assuming that ebola doesn't conquer the world) will be that airlines will be flush with cash. AA alone buys 4 billion gallons of jet fuel. Even at only a 50 cent/gallon decline (and we're already past that), you're talking an extra $2 billion in annual profit.

But it remains to be seen whether the airlines can actually pocket that. Low fare airlines will be in a bit better competitive position when fuel prices are reduced (since everybody has to pay the same price at the pump). It is likely that they can lower prices and stimulate demand. Heck, the big airlines might lower prices to stimulate demand. And routes that aren't profitable at high fuel prices (think long haul) might start seeing new service. Lured by favorable conditions, we might also see new entrants in the industry.

All this could change on a dime, as oil prices are notoriously unpredictable. But there is a fundamental reason for the decline -- the huge increase in USA oil production -- and financial interests (which have inflated the price tremendously in recent years) may not want to get back in the game anytime soon. So we don't know. But if the current trends hold, airline travel is going to be quite different in the next few years than from what we've recently seen.

Mauibaby2008

Why post twice?

Hengilas

It was clearly an accident. Why bother replying with that question at all?

As for the OP...I think that even though gas prices fall, airfare will probably remain in a similar ballpark to what it is now. Airlines are used to charging what they are - and consumers are used to pay it. I might be able to see some LCCs slashing prices in 'sales' here and there, but I don't expect long haul or premium products to become much cheaper as a result.

gfunkdave

Savings is not profit, as you noted in the beginning of the next paragraph.

Regardless, you can bet your bottom dollar (profit!) that ticket prices will not change.

iahphx

Oh, ticket prices WILL change. They'll be lower. Thirty percent of the cost of operating a flight is fuel. Over time, there's no way the airlines will keep all the savings. You'd have to have a perfect monopoly. Indeed, even if you did, you might lower prices to stimulate demand (a monopolist might make more money selling more goods at a lower price point than fewer goods at a higher price point).

kebosabi

Hopefully it means end of YQ charges. :crosses fingers:

Obivously it can't last forever though.

Dadaluma83

I am hoping this drop in jet fuel means a bit lower fares. After almost 2 years together I have agreed to take my girlfriend with me on a trip to introduce her to the travel lifestyle. She is a huge country music fan so she picked Nashville. Unfortunately late March round trip to BNA is about 420 right now. Fingers crossed I see a fare sale come January or so. The hotel will kill me anyway. Hyatt downtown is about 230 a night, for 3 nights that will add up. In the dozen or so personal trips I have taken since I started traveling about 3 years ago I have never paid more than 110 or so for a room.

Come on low jet fuel prices time for some sale fares! ^

mikew99

Why not? It's constantly being explained on FT that airline pricing isn't based on cost; it's based on what the market will bear.

As long as planes are flying full, there's no reason for airlines to cut prices. Airlines will lower prices only when demand falls and/or competition increases.

Tchiowa

The drop in oil prices is transient. 90% chance oil will be back over $100 before the year is out. $100 seems to be the balance point.

seawolf

Isn't price where the supply and demand curve intersect? As long as supply (load factor) is high, airfare will not drop. It will only drop if airlines start adding extra capacity.

Bttc

Load factors have actually been down recently. . .

zerolife

Any source to back it up? All I have heard and seen is that load factor is higher than ever. Doesn't necessary mean there are more passengers, airlines have been drastically cutting capacity / supply.

I agree with most posters here, the US airline industry is anything but competitive. Most routes are only flown by a single airline.

fischi

There should be an option price for jet fuel that would tell us what the market thinks the price will be in a year. But google was not my friend today and I couldn't find it. None-the-less, I'd guess that if the price is expected to go up, airlines will bank what they can now.

RustyC

Re: OP. Hopefully it'll get SOUTHWEST to offer better sales and add routes, as they still have the baggage allowance and aren't as heavily into the other fees.

U can bet that absent competitive pressure the airlines won't back off of the unbundled fees like the baggage ones. The YQs also have a way of being very slow to get adjusted. As others have noted, you've got a cartel like situation with artificial seat scarcity, and people like Richard Anderson thinking they're making great decisions as long as seats stay full.

Southwest and especially ULCCs with ability to expand could be the spoilers. Lower fuel costs could be a real benefit for Frontier and Spirit, and may encourage more trialing of longer routes (like Allegiant with Hawaii).

We've seen this before, though, and it doesn't tend to last. Wars and other threats to supply could still be a big problem, and demand from places like China and India IMO will swamp gains from fracking (remember, none of that oil is being sold at below-global-market prices). Oil supply is still finite and the long-term direction is still up.

SEA-Flyer

Keep in mind that a drop in that just because fuel prices have dropped, the airlines immediate fuel costs won't drop the same amount - they have some of their fuel costs hedged (on the losing side).