Lower Prices at Pump Does not Mean Lower Fares
Benchmark crude fell 4% last week to close at $57.04 Friday. Airlines are facing consumer pressure to drop the fuel surcharges put in place last summer, when oil prices soared to heady heights.
When consumers see falling prices at the pump, airlines will have a hard time defending their rationale for keeping fuel surcharges in place, says Coral Gables, Fla., based airline consultant Stuart Klaskin. Klaskin said that he doubts air travel will become much cheaper. Should airlines remove fuel charges, he expects they’ll raise base fares to make up the difference.
That may sound like a tricky maneuver at a time when the ever-softening economy seems likely to drive down demand for travel. But Klaskin argues that airlines must keep fares up to survive the economic downturn. That means resisting the temptation to cut fares when demand weakens. The better move, he argues, is for airlines to keep cutting capacity into next year in order to keep fares buoyant. “We’re going to see how much backbone everybody’s got in providing a smaller, but more-profitable, industry,†Klaskin said.
Karen
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