Oil is Down, Why Aren't Fees and Fares?

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Now, we’ve mentioned before a bit of this, but we thought we should devote a another specific post to the issue.

Fuel is down, but many airlines weren’t doing wonderfully before it went up, and this put them over the edge.
Fuel is down, but many airlines hedged their fuel, and thus are in the position of having to pay MORE for fuel than market rate. Fuel hedging is good when it works, but no matter, what, someone is always losing money, if not the airline, the person they contracted with.
“Sticky Prices” – the tendency for companies to delay both raising and lowering prices in response to changes in raw materials. As the Associated Press explains, consumer prices are set by companies, commodity prices are set every day on the open market. Many companies are slow to raise prices out of a fear consumers will abandon them to a competitor. Once a price hike is in place, it virtually never goes away. For prices to drop, companies have to lower prices in an attempt to lure customers away from their competitors, because if they keep them where they are, they can reap greater profits, which is what they want. The first airline to do this may eventually be matched by its competitors. Nobody wants to be first.
There is a secondary incentive for lowering prices. Reduced consumer demand. In the current economy, consumers spending is down. Airline tickets are often considered a luxury, not a necessity, and with fares up fifteen percent on average in the last year, people may just decide to stay home.Â Business travel is expected to drop as well with the slowing economy. Both of these may provide the push the airlines need to reduce prices.
None of this means the good old days of $29 fares are coming back. But there may be some relief coming. Airlines will keep fares and fees as high as they can get away with. So keep hunting for those deals.

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