Gas prices are down, so why aren’t airfares?

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By | January 29th, 2016

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.

The airlines are not only oligopolistic, but also exercise considerable power in Washington to squeeze regulators to block rivals from getting a foothold.

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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.

No one is surprised that flights today are more crowded and more expensive, with more fees and worse service.

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.”



  • sirwired

    Air travel is a highly cyclical industry. Their profits, while high right now, are not out of line from what you would expect in an industry that LOSES money like crazy when oil is expensive or the economy is poor.

  • Bill

    I don’t expect that airfares are going to be pegged to fuel prices or only the very wealthy would be able to fly with crude at or above $100 a barrel. While I view this type of argument as whining, I would be supportive of governmental controls or involvement to better distribute access to various airports such that the “playing field” was leveled a bit providing for more competition between all carriers at all airports.

  • sirwired

    Very few airports (outside of the hubs) are capacity-constrained. Forcing more competition into the hubs does sound nice, but in effect it would eliminate the hub-and-spoke system as we know it (which all the “legacy” airlines use.) This would really make international itineraries a lot more painful. (And most of the hubs DO have room for other airlines; the other airlines just choose to not try and break into that market, as they’d mostly be offering connecting service while the dominant airline offers a bunch of direct service.)

  • Bill

    Thanks for your always elucidating commentary … you obviously have more first hand knowledge about this than I, (reading through many, many of your responses has convinced me of this) and I appreciate your feedback. I was, obviously ineloquently, referring to the statement in the original article:

    “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.”

    In your view, does this condition truly exist and, if it does, is it bad?

  • AJPeabody

    Airfares in the US will never again be cyclical. Cycles only happen when there is a cyclical change in the supply vs demand ratio. Since the industry is now highly concentrated with an overwhelming proportion of the business in the hands of local monopoly or duopoly carriers, and with the industry at last realizing that fare-cutting competition destroys profits, you can be sure that yield management and capacity discipline will enforce industry-favoring supply vs demand regardless of changes in demand. Should the economy tank, the capacity will be cut.rather than the fares.

  • Alan Gore

    Aah, cronyism! That is is the issue that is causing the voters to cluster around Trump and Sanders, while the corporate-funded candidates in the middle can’t draw flies.

    On the national level, it’s time to rip out that ban on foreign competition. Then cities need to reexamine their fortress hub deals with airlines. Is help on expanding the local airport worth the high prices people are paying as a result?

  • MarkKelling

    It is true. Just look at any major hub in the US and you will see it: Atlanta is mostly Delta flights, Houston is almost exclusively United, Dallas is all American, and so on. And at many airports, the major player also controls the majority of the take off and landing slots available, sometimes owning more slots than they have flights a day. It is bad in the airports where there are no more available slots and that majority player will not free up any of the extra slots for competitors to use.

  • LostInMidwest

    And when everything else fails, there is always “YR” line item on your ticket to make things right. For the airline, of course ;)

    If Americans would want more realistic prices, better service and human treatment, they will have to do the unthinkable and let Government tax them for GASP! building Infrastructure. Like that was ever Government’s job …

    The moment you have modern highways that allow 100 mph average travel and high speed trains that allow the same (or higher) average speed travel, watch the airlines finally behave like private enterprises in a healthy capitalist economy should. Without competition from other means of transportation or foreign carriers, fat chance of that happening – we are doomed to suffer monopoly/duopoly as mentioned by AJPeabody above.

  • sirwired

    Atlanta is mostly Delta flights, but there is hardly a dearth of service from other US airlines. In fact, if you take the Delta connecting passengers out of the equation, there’s about the exact amount of traffic you’d expect at a city of Atlanta’s size, with service from a variety of airlines to match.

    In Houston, you forgot Hobby, which has a major operation for Southwest.

    In Dallas, there are quite a few airlines that service DFW (to quite a few destinations), even if AA is the largest carrier. (And of course there’s Southwest’s major operation over at Love Field.)

    The ONLY slot-controlled airport I know of that is a hub for one of the legacy airlines is Newark, and there two other airports in the metro area with plenty of competition. JFK is a hub for JetBlue, but they hardly dominate the airport.

  • sirwired

    Parking airplanes in the desert is EXPENSIVE; they might very well cut capacity instead of fares, but that doesn’t mean they’ll be profitable (especially if a fuel price spike goes along with it.)

  • LostInMidwest

    No it isn’t. Free market allows for competition. We do not have:

    – RyanAir-alike (not that I would ever fly it, but we do not have it regardless) bottom-price airlines

    – Autobahn-like highways that allow for 100 mph average and might make people think 7 times before they board an airplane for 300 miles long trip

    – TGV-like trains that travel at average speeds of about 100 mph, are more expensive, but hugely more comfortable way to travel which would make people think 3 times before boarding a plane for up to 600 miles long trip

    Give me all of those choices to travel and then we can talk about free market and capitalist economy.

  • KanExplore

    I agree with the article’s point that we need more competition – I favor allowing foreign investment in US airlines and allowing foreign carriers to serve the US market much more freely (bring in a Ryanair or Air Asia subsidiary and see what happens with fares). The article is unfocused, though, bringing up a laundry list of standard complaints, some of which are relevant to bringing fares down, and others not relevant or averse to that goal.

  • MarkKelling

    Since the quote was “airports” and not markets, I picked individual airports. Yes, Southwest has Hobby in Houston, Love in Dallas, Ft. Lauderdale near Miami, and so on. If you expand to the market, such as New York City, there are multiple airports serving most of them and the point is moot.

    One of the strangest slot controlled airports is Love Dallas. In order to get the Wright amendment repealed, the number of slots at Love was severely reduced. Southwest flys less flights from there now because they had to give up slots and gates to qualify for the “repeal” of Wright. Love could handle many multiples of its current flight load and still not interfere with DFW but they are not allowed. And Dallas could use more flight capacity! Your government at work.

  • Bill___A

    The airfares are set according to the market demands. Although I don’t have a huge issue with airfares, I do have an issue with that portion of the airfare they call a “fuel surcharge”. Fuel is just one cost component in airfares and it should be embedded in the fare. You can’t choose to fly with no fuel like you can choose to fly without a bag. Considering many things are linked to the actual airfare, such as the cost of reward tickets, compensation under EU rules, etc, it should be in fact illegal to break out any significant part of the base fare, specifically fuel surcharges.

  • Lee Delong

    The people running the U.S. Airlines are less than honest. The JAX ticket counter is the perfect example of upper lack of management. When you give them the name and phone of a supervisor they won’t even call. Bullies, one and all. petty tyrants

  • Extramail

    I can assure you I only think once about boarding an airline for a 300 mile trip and then I get in my car and drive. The airlines have “driven” me out of airplanes!

  • nativenewyorker

    While permitting the consolidation of the US airline industry was a ridiculous mistake in my opinion, the premise of the article is wrong. Airfares are down: American Airlines just reported that it revenue per passenger mile was down 8.9% in the fourth quarter of 2015.

  • Carchar

    We’re used to these prices. Give us wider seats and more pitch.

  • LonnieC

    Uh oh. I see a new “reward ticket surcharge” in the future. Be careful what you write….

  • Lee

    Is anyone actually surprised? Deregulation was a boondoggle for this industry and they aren’t going to pass on any savings to all of us; they have conditioned us to get used to lousy service and minimal amenities – why would they do the right thing now?

    I always figured they would take great advantage of the horror of 9/11 and they did and they have continued to do so for over 14 years now – Shameless but so are many corporations – not many of which are striving to create good relations with customers –

  • SimoneNY

    So now that they’re enjoying big, juicy profits, when do the airlines pay back all the taxpayer money we LOANED them to get them out of financial trouble and keep flying?

  • Fishplate

    “Atlanta is mostly Delta flights”

    Yes, but I have a large number of choices on American, or Southwest…even Air France has 889 destinations from ATL, (but some of them involve Delta flights).

  • John McDonald

    just paid $1.70 a gallon in Colorado & $3.60 in California. That’s a huge difference, but if people want prices regulated, it might be $3.60 in every state. Be careful what you wish for.

  • John McDonald

    airlines are a terrible long term investment

  • John McDonald

    the 3 major airports in Australia don’t even want to talk to airlines with aircraft under 50 seats. Australia is heading down the SURF AIR theme, but unlike USA, Australia doesn’t have airports everywhere.
    Look at Sydney, it doesn’t have a major airport from 11pm to 6am due to a stupid curfew. It’s second airport can’t even take a small jet like an ERJ135.

  • Noah Kimmel

    Airline competition also takes time to develop. You can’t quickly hire pilots and buy $100 million planes. So adding flights generally means removing others over the 1-3 year time frame. Until more planes are in fleets, you can only grow by adding seats. Otherwise supply/demand will keep prices high, regardless of fuel cost.