Airlines aren’t happy about lower oil prices

qantas- courtesy qantasAFTER last years’ record profit of A$921 million (US$665 million) due largely to lower oil prices, Qantas is reporting “some softness in demand: and will be cutting back on planned capacity increases. Domestic capacity growth in the final quarter will now be negative. Internationally three Sydney-Los Angeles services will be axed, and the capacity will be redirected to services to Singapore and Hong Kong.

It does make one wonder why as the cost of oil goes down and while the airlines are not forthcoming in reducing or removing the fuel surcharge, they are complaining about making less.

united logoUnited Airlines, which has announced first-quarter profits above analysts’ expectations, said it would slow its growth plans because, according to its chief revenue officer Jim Compton, “demand is not growing at the level of industry capacity.”

The key is capacity. Airlines know that by controlling capacity, they will be able to shore up prices. It is the simple law of demand chasing supply. Thankfully in a free economy, there is competition, and hopefully that will continue to moderate fares to a reasonable level so long as there is no collusion among the operators. Keeping ticket prices up at the expense of market growth is a gamble that may not work well for the future.

The collapse in oil prices has also led to cheaper options offered by low-cost carriers, and this in turn exerts more pressure on legacy airlines to lower fares or lose market share. No frills seats are now being offered on full-service airlines in the US.

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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.

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