Rising Oil Prices and the Airlines: Why Airfare Shoppers Must Pay Attention
Feb. 21 – Today oil prices climbed to just over $105 per barrel – its highest price since last May – due to concerns about supply after Iran said it will sell no oil to Britain and France. As the AP notes, those two countries import very little oil from Iran, so the move was seen as symbolic – or perhaps a threat – to other nations that do use more Iranian crude.
Rising Prices at Pump, Rising Prices on Airlines
This comes amid reports that average prices at U.S. pumps are nearing the $4 a gallon mark and at some stations in Los Angeles premium gas has already topped $5. As airfare analyst Rick Seaney noted last year in his column for USA Today, oil and airfare prices are joined at the hip: "As the price at the pump goes," he added, "so goeth airfares."
While Seaney points out this is perfectly logical, he also notes that the price of refining jet fuel has been rising too and this fuel now accounts for about 30 percent-plus of airline operating expenses, as opposed to about 20 percent just a few years before. Airlines recoup these costs from passengers with fees and rising airfares – and sometimes even fuel surcharges.
Already this year, Seaney isolated and analyzed three separate airfare hike attempts – two of which were successful – and he expects to see "regular attempts" at raising fares in the months to come.
Similarities to 2008's Near-$150 per Barrel Oil Prices
In early 2008, oil prices began climbing to an eventual high in July of well over $140 per barrel, and the airfare hiking activity that accompanied the rise during the first quarter of the year "eerily resembled" what we're seeing now, according to Seaney.
However, he also notes big differences in today's environment – including fees for checked-bags – which were just getting underway four years ago.
Summer Airfare Forecast: Rising Prices
What will ultimately happen this year, in terms of pricing, will ultimately depend on passengers and their appetite for air travel. At the moment, says Seaney, this shows no signs of slowing down and the analyst has forecast higher summer airfare prices but not "too high" because the airlines will know when they gone too far. "Travelers will let the airlines know when they've reached the breaking point," said Seaney. "They'll stay home."