The recent drop in oil prices has enabled some airlines to enjoy reductions of up to 45% in their main operational expense: aviation fuel. But contrary to what consumers might have expected, airline prices have largely remained the same – and that’s not something that looks set to change.
What Do The Lower Prices Really Mean For Airlines?
Oil prices have more than halved since June 2014. January of this year saw Brent crude oil dip below $50 a barrel for the first time since 2009, and prices were still low as of last month. Suffice it to say, this has been a reason for celebration in the airline industry. Frank Werner, associate professor of finance and business economics at Fordham University’s Schools of Business and an airline finance expert, told the Guardian that US domestic airlines would probably increase their profits by a massive $6 billion in 2015 due to reductions in fuel costs – little surprise when you consider that fuel can account for as much as 30% of an airline’s expenditure. The bad news: it now seems highly unlikely now that consumers will ever see any of that benefit, with experts stating that airlines are choosing to utilise the savings elsewhere.
So Why Haven’t Ticket Prices Fallen?
Although a small number of airlines – Virgin Airlines and Qantas among them – have lowered their prices in line with falling fuel prices, they’re among the minority. The simple truth – according to Peter Davies, former chief executive of Air Malta – is that airline ticket prices are “market-driven, not cost-driven”. With the exception of fuel surcharges on long-haul flights, experts generally agree that as long as demand remains high, so will prices. Airlines’ unwillingness to reduce their costs and try to pick up business from their rivals has even led some industry analysts to suggest that we’re living in the age of an “air travel oligopoly”. As undesirable as it might be, it seems that the only way for consumers to vote is to keep their feet on the ground – literally. For many us, this is just not a practical option.
Are You A Business With Travel Expenses? Here Are Some Alternative Ways To Save
If you’re a business that spends a lot on flights, the above news might come as a particular blow. But why not use it as motivation to look into other ways to save? The Telegraph has some great suggestions for businesses to consider, including slimming down your office space, reviewing your hiring and training practices and looking at enterprise application solutions instead of separate (and pricey) software licences. Business can also consider solutions like the email hosting services from1and1, allowing employees to conduct more and more of their daily tasks remotely. Moving forward with the times you may even consider having your employees work from home on occasions. Apart from savings you can also expect increased employee moral.