Airline passengers not expected to get much relief
With a recent drop in oil prices, some observers are asking whether that means lower airline prices. The answer, according to industry experts, is a simple one: no.
“Once a bell gets rung, it’s hard to un-ring it,” Rick Seaney, chief executive of the air travel information site Farecompare.com, told CNNMoney.com.
The continued upward climb of prices will come despite a recent plunge in oil prices of more than $30 a barrel after hitting a peak of $147.27 on July 11.
Some industry watchers believe that the airlines need double-digit fare increases to become profitable.
Carriers are likely to continue to attempt to boost their revenue with new fees for once-free services and items, such as checked baggage and non-alcoholic drinks.
Cost-saving measures like laying off staff and eliminating the least fuel-efficient flights are also expected to continue, offering no passenger relief from recent complaints.
William Greene, airline analyst for Morgan Stanley, believes that the recent downturn in oil prices may help save the airline industry.
“The recent oil price move, if sustained, is a game-changing event for the industry,” said Greene, in an analyst note published this month.
The hard-hit airline industry will have to continue to raise fares to offset the fuel costs. Estimates of how much vary widely.
The ATA says the price of a domestic ticket increased 7% in the first half of 2008, compared to the same period last year.
Michael Derchin, an airline analyst with FTN Midwest Securities, agrees with the ATA number and believes that airfares will increase by another 8.5% to 9.5% after Labor Day.
“I don’t see it as raising the fares,” said Mr Derchin. “I see it as the airlines restricting the availability of the lowest fares, and forcing people to pay the higher fares that are already in place.”
He expects the average airfare to go up by another 8% in 2009.
Also, lower oil prices do not mean a return of $4 a gallon or $90 a barrel oil prices, points out Markham Lee, a Seattle-based Management Consultant.
“While both are nice ideas and are actually within the realm of possibility, it’s important to note that the overall pattern for energy prices has been one of jumping to a new high, falling back to a plateau that would’ve a high in the past and then moving back up again,†he writes.
Report by David Wilkening
David
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