Fuel costs fall, but air fares not likely to follow
DETROIT -- The financial hit at the gas pump is a lot less painful since oil prices dropped dramatically — but don't expect airfares to follow the same heading.
For most of this year, airlines have blamed soaring fuel costs for hikes in ticket prices. But as fuel bills dropped, a worsening economy may have grounded many travelers. The airline industry traded a fuel crisis for a financial crisis.
"They've got to make a buck, and they haven't made a buck for so long," said Terry Trippler, an airline analyst based in Minneapolis. "I just don't anticipate seeing airfares drop substantially in reaction to lower fuel costs."
As of Oct. 10, the average per-gallon jet fuel cost for U.S. carriers was $2.56. The average price for most of 2008 was $3.38.
"You don't recover from multibillion-dollar increases in your fuel bill in the matter of a few weeks," said David Castelveter, spokesman for the Air Transport Association. "The carriers are still on track to lose $5 billion this year."
Castelveter adds that airfare increases have stayed low, despite the 274% increase in jet fuel prices since 2000. During that period, he said, airfares have increased just 1.3%.
"We waited a while to react to the increases in jet fuel. ... We haven't been able to make that up," said Michelle Aguayo Shannon, a spokeswoman for Northwest Airlines. "But you have to really look at the airfares; there's a false sense that fares are through the roof."
Pockets of cheap deals are available, especially in markets with a low-cost airline such as Southwest competing on a high-volume route, said Rick Seaney, chief executive officer of farecompare.com.
But overall, domestic U.S. airfares went up this year from 2007's prices — rising 20% between bigger cities, 30% between midsize cities and 40% between small cities, Seaney said.
Seaney said the airlines are in survival mode and will continue to cut flights, slashing about 200,000 seats a day, beginning in mid-December.
Cutting flights already has made a difference in the airlines' bottom lines, cushioning losses that could have been much worse, said Darin Lee, an airline analyst for LECG, a global consulting firm based in Cambridge, Mass.
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