Lower Airfare, or Not?
Wouldn’t it be awesome if the next time you went on vacation your airfare was just magically less expensive. What if I told you that airline companies had the opportunity to do this, but they choose to keep the fares the same and attend to other company need.
Since, the year 2015 various airliners have been saving big bucks on fuel. In 2015, Southwest Airlines announced they saved over $1.7 billion, and Delta airlines announced an even more staggering number at $2 billion in fuel savings (Reuters).
The topic that is being debated by many in this day and age is what to do with all this brand new acquired money. For those of us who enjoy flying a decrease in fair prices would be ideal. "Several of you have asked us if we are pricing to account for the lower fuel prices," said Andrew Harrison, senior vice president of planning and revenue management at Alaska Airlines, during the carrier's quarterly earnings call. "And the answer is no." For, those of us customers these are tough words to hear, but after looking more into these companies, their decision to not lower fare prices and to attend to other company needs makes a lot of sense.
For these companies, the pricing of tickets comes down to demand. Airline tickets are an inelastic good meaning that even though there prices are high there is still a constant demand as people need to fly out of necessity, because when traveling long distances, it is a lot more convenient. So there would be no point to lowering prices, as the increase in demand from lowering prices would be marginal, and would not make up for the profit loss from lowering prices due to the inelasticity.
Instead of lowering prices these companies are attacking other company needs. Most companies are returning a majority of this money back to shareholders and reinvesting it back into the company. Also other companies are attending to debt or service improvement (Reuters).
Overall do not expect airfare prices to lower anytime soon, these companies have other more important needs that need to be attended to. The overall benefit to lowering ticket prices, would be marginal and not be worth it. So unfortunately, all airline ticket prices are staying relatively the same.
“Airline Profits Soar Thanks to Cheap Fuel, High Travel Fees | Money.” Time, Time, time.com/money/4188985/airline-profits-airfare-fees-fuel-costs/.
Reuters. “Despite Big Fuel Savings, Airlines Don't Expect Lower Fares.” Entrepreneur, 2015, www.entrepreneur.com/article/242128.
The airline said Thursday that it expects to save half a billion dollars in the first quarter alone. “Southwest Airlines Is Saving Billions on Fuel.” CNNMoney, Cable News Network, money.cnn.com/2015/01/22/investing/southwest-airlines-earnings-fuel-savings/index.html.