Q – I just paid $2.10 a gallon to fill my Lexus with premium gas. I imagine the airlines are seeing similar huge reductions in the price of fuel. So why did I just pay $120 more for a round-trip ticket on Delta to London than I did the same time a year ago.? Is this the nation’s biggest rip-off or is there a plausible reason why airline prices have not nose-dived since these guys are buying fuel for their planes at the lowest prices in years?
A – Oh these cynical traveltruth readers! You mean to imply that the major airlines in the US would not pass on all of their current savings realized by sharply lower fuel costs? What will you be expecting next, thicker seats and more legroom? Or, perhaps, the airlines should pay us all reparations for past injuries suffered as a result of their blatant disregard for the comfort of those they serve.
The prevailing analysis is that five years ago, fuel took up 30% of the major airline’s operating costs. That number has been halved in the past twelve months and yet airfares have declined by an average of only 3%. Put another way, the nation’s four largest airlines recorded profits of $22 billion last year with the consumer seeing little in the way of price reductions.
Airlines operate is a far less competitive environment than they once did so they see little need to steal customers away from one another with lower prices. Instead, the “majors” have been investing their profits in new aircraft and in stock buybacks, strategies favored by their stockholders. Writing in The Atlantic, aviation reporter Joe Pinsker points out that the five largest Investment Fund Managers own about “17% of both American and Delta.” The current strategy on airfares also tends to keep the regulators at bay since it is harder to prove that airlines are colluding on pricing.
We are presently in an environment where the airlines have little incentive to change much of anything while they stockpile for the future and figure out new ways to incentivize as many components of the flying experience as possible. Sorry, it is all about happy stockholders not happy fliers.
Ticket prices should be 10% lower than they are given current fuel costs.