Oil price drop won't lead to holiday airfare dips, analyst predicts
Airlines taking wait-and see-approach before lowering fares based on jet fuel price drop
Consumers shouldn't expect to see cheaper holiday airfares despite a drop in the price of jet fuel, one analyst says.
The price of oil is hovering around $66 USD per barrel — a decrease of about 35 per cent since the summer — but airlines aren't seeing the big savings on jet fuel that would inspire them to pass the benefits of that oil price drop on to passengers in time for Christmas.
"I can't see any carrier either reducing base fares or reducing the fuel surcharge during the busy Christmas spike because that's one of the few times of the year when, at least in Canada, there's a pronounced spike in demand and I don't think the carriers want to give up the opportunity to make money at that time," said Robert Kokonis, president of the aviation consulting firm AirTrav.
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With the Canadian dollar at a five-year low, airlines are also having to spend more to get the required amounts of fuel. That drop in purchasing power effectively cancels out the oil price drop, leaving airlines with few savings to pass on to passengers hungry for a holiday deal.
"We've almost offset the reduction in jet fuel by the impact that we're seeing on the weaker Canadian dollar," said WestJet CEO Gregg Saretsky.
Lower fares still possible
Saretsky didn't rule out the possibility of future fare drops if oil prices stay low, saying he and other airline executives around the world are watching carefully to see whether lower oil prices are here to stay.
Kokonis agreed, saying it all comes down to whether the low dollar and oil prices can get to a point the airlines will consider a happy medium.
"If the Canadian dollar stays no lower than 84 cents, 85 cents and if oil were to get as low as $50, I think at that point a WestJet or an Air Canada, for that matter, domestically will feel compelled to lighten up base fares somewhat," he said.
While that won't happen in time for the holidays, Kokonis said consumers could start seeing some small reductions in airfare over the next several months — in the area of two to three per cent, he says.
However, fares probably won't drop much more than that given public willingness to pay higher costs for air travel.
"As long as demand is there and people are prepared to pay that price, there's less impetus for these airlines to reduce their pricing," Kokonis said. "It's a supply and demand market."