No other event in 2016 will have an impact as massive as the continued slide in fuel prices.
Oil’s fall from grace will influence airline profits more positively than any single event in modern history, predicts Moody’s Investment Service.
The slump in price has been so rapid that it’s been like winning the lottery for the airline industry. Even if the price does not fall as far as previous lows, most airlines have adjusted to being profitable with oil at $100 a barrel, so the windfall will flow straight to the bottom line.
Last week we spoke to the media about the trending story of why savings from falling oil prices have not been passed along to customers.
In earnings reports released last week, executives from the country’s biggest carriers bragged about profits that have surpassed those reported before the Great Recession and the 2001 terrorist attacks.
The result is that Americans are being pickpocketed. Airfares and fees are costly because carriers refuse to compete with each other, ensuring they can continue to charge high prices.
At 40 of the 100 largest U.S. airports, a single airline controls a majority of the market, as measured by the number of seats for sale. This is up from 34 airports a decade earlier.
According to an Associated Press analysis of data from Diio, an airline-schedule tracking service, one or two airlines control a majority of the seats at 93 of the top 100 airports, an increase from 78 airports from 10 years earlier.
So fuel costs have come down, but fares haven’t. Paradoxically, airline profits have skyrocketed while quality of service for customers has dropped.
Travelers are now performing a number of tasks previously performed by travel agents and employees — from booking tickets to checking bags.
The price of jet fuel is dropping precipitously. The U.S. economy is improving. Unionism is on the decline. And efficiency is improving with the use of advanced computerization.
Yet some carriers continue to impose extra charges they initiated during the lean years when oil prices were high, such as jet fuel surcharges, fees for each piece of baggage, and charges for in-flight food. All contribute to high airfares.
In particular, jet fuel surcharges have drawn the attention of Washington.
Last year, Sen. Charles Schumer asked the Department of Justice and Department of Transportation to investigate why airfares have remained so high despite declining oil prices.
2016 will be yet another year of record profitability for U.S. airlines. Unfortunately for airline customers, they should expect more of the same treatment in 2016.
Instead of adding flights, “Almost all of our capacity growth domestically is about putting more seats on airplanes,” said American Airlines president Scott Kirby in a 2015 investment conference and echoed by the other U.S. carriers. “We will absolutely not lose our capacity discipline.”