Topic of the Week: Oil Keeps Rising


Oil prices are rising over $100 an that ain’t good for airlines. It’s certainly going to mean rising prices as well. Discuss.

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25 comments on “Topic of the Week: Oil Keeps Rising

  1. When oil goes up everything goes up. Look for more fuel surcharges if this keeps up. Not only for airlines but also for trucking and if you have it, a truck brought it. This can only hurt the economy.

  2. It’s certainly bad for travellers, as high oil prices definitely cause the airlines to raise ticket prices and reduce capacity. So you have fewer convenient flights, full planes, and high ticket prices. Yuck!

    It remains to be seen if it’s bad for airlines, though. If prices keep going up, it will be. But if prices retreat a little and the fare increases stick, they may financially benefit from all this.

    The irony is that the THREAT of higher oil prices is good for airlines because it keeps them very disciplined. I do not believe that a period of stable oil prices would be more profitable for them.

    1. Comparisons of a single commodity are useless when comparing the “relative” expense base of one nation and another… Or else we can make the same argument about the 70% tax rate in those more “enlightened” countries…

        1. The plus of walking around is that it will help reduce our overweight epidemic. New Yorkers are fit partially because they do so much walking between their offices, homes, and subway stations. It’d be a win win for the airlines.

          Speaking of which getting back to the topic at hand, what about selling airline tickets by a base fare plus weight. The base would cover the space on the plane, as well as the fees for tickets, employees, etc. Whereas the weight would cover the whole weight of that passenger (them, their clothes, their carryon, as well as their luggage…)

          That’d probably be the most fair, but I’m sure the first airline that tries it would get sued out of existence. (Except Southwest, which has already proven that it is impossible to sue out of existence, much to the chagrin of American Airlines..)

          1. I’m 6’7″ tall and weigh 350#. I would go for the fare with a weight component IF the airlines would have seats that fit – more pitch, wider between the arms, and taller backs.


  3. We have a lot more to worry about than rising airfares if oil prices keep going on their recent trajectory. We’re not too far away from the point where gas prices start depressing overall economic activity, which means one thing – demand for products and services like airline flights will start dropping, and the airlines won’t be able to keep raising their fares to cover rising fuel costs. The dreaded “death spiral”, if you will. 1990 and 2008 redux.

    Of course, if the super spike never materializes, and prices stabilize around their current level, it might not be all bad, especially if fares are able to stick at their current levels.

  4. ABout 5 years ago, Alitalia, along with American and Delta had large MD-80 (or variant) fleets.
    Hate to say it, but I think Alitalia did something right by realising they had to ditch this type, while American and Delta hung on.
    Yes, American has much bigger issues, like arranging financing for a fleet renewal when unit costs are higher than everyone else after having avoided Chapter 11. Yes, Delta are ditching their DC-9s pretty quickly. But I can only imagine that AA and DL are going to be feeling quite a bit of pain shortly
    I’m also wondering how this will affect Allegiant – how much pain will they see soon ?

  5. We all hate to pay more for things, but if the supplier charges you more for you most used item, any business would raise their prices to offset the increase. The airlines are a for profit business which to many people seem to forget.

    Hopefully they have the smarts to also know they can only raise prices so much before a certain tier of passengers can’t afford to travel my air which doesn’t help them since it would mean raising fares to offset that, which could have a snowball effect on the whole operation.

    1. Quote David: “if the supplier charges you more for you most used item, any business would raise their prices to offset the increase”

      The first response of the truly smart and competitive business is ask themselves (and others) “How can we use LESS of that item?”. Merely passing on the costs is the mark of a failing enterprise.

  6. Legacy carriers will raise fares and fees as a result if oil prices keep rising. However, it won’t be only fuel surcharges that increase, all fees will increase. Then when oil prices come back down the fuel surcharges will fall away, but the additional fees will not.

    As a result the LCCs will continue to increase their domestic flying while the Legacy carriers shrink here at home. The worry for the legacy carriers is how long does WN stay out of the international game. If WN starts flying US-MX or US-CA then they will dominate those routes too.

  7. Southwest was selling transcon tickets from $99 to $155 each way on Tuesday, Wednesday, and Thursday this week, with Delta matching on some routes. The carriers will stick it to the folks they always do, last minute travelers. I’m betting there will still be short term sales for leisure trips, because those planes will have to fly full.

    1. We could start by DRILLING for some of the oil the envirowackos have managed to keep under litigation lock and key for THIRTY YEARS…

      There have been NO refineries built in the US since 1979 despite increasing demand, and we are slaves to OPEC because nobody in government seems to be able to man up and start using our own oil.

      Remember, Carter formed the Department of Energy in 1975 to make us ENERGY INDEPENDENT…. $60 billion a year since 1975 for what…???

  8. The largest expenses for airlines are labor and fuel. Rising fuel prices will have to be offset with higher prices somehow. I’d be looking for fare/fee increases. Either that or it’s back in the red again.

  9. Actually, we are currently between the pricing regimes of 2007 and 2008. In 2007, fuel price levels did not significantly affect economic activity, or even consumer behavior much. In 2008 it appeared around Jun – Jul that fuel prices were affecting economic activity and consumer behavior, however as we now know we were also in the beginning grips of a financial market meltdown. Thus, it is actually unclear whether fuel prices to the 2008 levels will significantly depress economic activity. If the price rises don’t depress economic activity, the airlines will adjust and the market will bear their pricing. Keep in mind too that if fuel is 25% of flight cost (that number sticks in my head for some reason) a 20% rise in fuel price affects the flight economics by 5%. Airlines had already adjusted to crude in the $80 range, and so even now we aren’t that far off the levels to which they were already accustomed.

    What mystifies me looking from the outside is why the airlines don’t actually hedge their business. Southwest locking in all that fuel a few years ago wasn’t actually a hedge in that, as I understand it, they were actually just long fuel into the future without having already sold the corresponding seats. I am talking about buying the fuel in advance (or options, depending on cost and style of the program) for tickets bought in advance. There has to be some level of that activity, and I would think enough to pay for a program. They have to have the physical desk already with back office support and most of the appropriate contracts in place, yet to my understanding they don’t do it. Bizarre.

  10. Well, what fee will the airlines find to add this time? Since they made it through the last major fuel rise by adding fees. (Okay, and some fare increases.)

    But I think they’ve figured this out much more than they had in the past.

    1. I believe that everyone (airlines and customers) would be better served if the airlines would simply incorporate their perceived price increase needs as ticket price hikes and not try and obfuscate them as lavatory fees or somesuch, or perhaps worse, as “fuel surcharges” which somehow never seem to go away no matter what the price of fuel, or their success in fuel price management.

      I view most fees as largely efforts to obfuscate the actual cost to the customer of a particular flight and to subvert the free market. Further, the airlines are often charging fees counter thsse their best interest (such as checked bag charges). And by labeling costs “Fees”, I believe that carriers tend to pretend that they don’t exist and not address the underlying problems, resulting in a less competitive, less desirable and more costly product – and a less profitable carrier.

      1. I agree with part of this, that things such as fuel surcharges should be included in the base price. However, optional things such as checked bag charges can and should be ‘fees’ since they are optional. How much it costs or saves the airline is debatable, but they are essentially extras.

  11. Passenger aircraft are neither Greyhound busses nor Amtrack trains. It is not rocket science, but our elite and elected officials can not understand the contradiction of the Hubbert Curve and the Malthusian Catastrophe. QED

    1. Oooh, Okay, I’ll bite: What does the (supposed) contradiction of two somewhat flawed hypothetical models have to do with the distinctions between three oil consuming modes of transportation and why don’t you think “elite and elected officials” don’t understand this dilemma and actually care? What are the relevant contradictions and have you factored in the implications of Moore’s Law and its ilk (to say nothing of paradigm change), and the speculative nature of the current price bump and the duration of the Lybian situation’s impact on actual oil production?

      As Cranky said: Discuss!

  12. Oils usually never declines thus affecting the passengers. I’ve been waiting for the discussion on the Lybian impact on actual oil production. Its been several months and there’s not any explanation.

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