Falling fuel prices do not necessarily lead to lower airfare

THE price of crude oil fell to a four-year low. It is today some 30 per cent below the price in June. This should spell good news for airlines, yet don’t be too quick to bet on falling airfare. It’s not a new story. (See The Irony of a Falling Fuel Price, Jan 29, 2009)

While airlines blame high fuel costs for their poor financial results and may use that as a reason to increase fares, it does not necessarily follow that they will lower the fare when they spend less on fuel. Considering that fuel expenses make up as much as 30 to 40 per cent of an airline’s operating costs, the savings should amount to a fair amount. easyJet is expecting its fuel bill to reduce by £50m. (See EasyJet rides on Air France’s troubles, Oct 5, 2014)

In the latest reports on their performances, many airlines have recognized the benefits of the falling fuel costs. Singapore Airlines (SIA) for one reported how its decline in revenue for the first half was cushioned partly by lower fuel costs. (See Singapore Airlines posts flat first-half performance, Nov 8, 2014)

So why the reservation?

For some airlines, it is a reprieve, and they are in no hurry to pass the savings back to their customers.

Falling oil prices may reflect a downturn in the economy. Many airlines including SIA have expressed that concern, which may result in lower revenue.

The falling fuel price may be short-lived. Oil-producing nations are likely to react by cutting back supply which will in turn reverse the trend.

OPECThe good news for airlines is that there may be disagreement among the oil producers, and the trend is likely to last at least until the end of the year as predicted by the US Energy Department. That means their customers can hope – yes, hope – that the sustained trend may cause some airlines to review their fuel surcharges, or that increased competition will lead to it.

Advertisements

About Dingzi
Writer by passion, with professional expertise in aviation, customer service and creative writing. Aviation veteran, author, editor and management consultant. Besides commentary on business issues and life-interest topics, travel stories and book reviews, genres include fiction, poetry and plays. Nature lover who abhors cruelty of any form to animals, and a tireless traveler. Above all, a dreamer.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: