Plunging gas prices not lowering airfares

by Keith Laing, The Hill Newspaper
1/5/15

A group that advocates for airline passengers in Washington is questioning why airfares have not fallen as quickly as gas prices have in recent weeks.

The chairman of the Arlington, Va.-based Travelers United group, which was formerly known as the Consumer Travel Alliance, said Monday that he was upset that falling gas prices have not resulted in discounted flight tickets.

“I am irritated at the lack of an understandable airline response to this situation where we consumers are seeing dramatically diving gas prices at our gas pumps and facing less room and more fees, stubborn fuel surcharges and airfares,” Travelers United Chairman Charlie Leocha told The Hill in an email.

The AAA auto club said Monday that the average price of gas on Monday was $2.19 per gallon, which the agency said was a record 102 days of decline in prices at the pump.

The average gas price on Monday was 52 cents cheaper than the amount divers paid a month ago and $1.12 less than the average on Jan. 5, 2014, according to the auto club.

The average domestic airfare was meanwhile $389 in 2014, compared to an average of $388 in 2013 and $387 in 2012, according to statistics compiled by the Department of Transportation.

The last time the average U.S. airfare dipped below $380 was in 2007, which was the year before most major carriers began charging fees for luggage in response to rising gas prices in 2008.

The disparity has attracted the attention of at least one lawmaker, Sen. Charles Schumer (D-N.Y.), who has called for an investigation into why airfare hasn’t dropped along with gas prices in recent weeks.

“At a time when the cost of fuel is plummeting and profits are rising, it is curious and confounding that ticket prices are sky-high and defying economic gravity,” Schumer said in a statement in December. “So I’m urging the feds to step in and do a price investigation on behalf of consumers who must buy holiday travel tickets that can break the bank.”

Travelers United’s Leocha said Monday that there were other factors for airlines to consider when they are setting airfare besides gas prices, but he also said the decline in fuel cost should still have translated to some savings for passengers by now.

“What seems like a slam dunk really isn’t,” he said. “All airlines except [American Airlines] are unwinding hedged fuel positions and have some of their fuel purchased through much of next year and European airlines are all faced with a plunging Euro that is driving their fuel costs higher.

“I haven’t figured out exactly what is happening,” Leocha continued. “But for sure there is not a direct correlation between what we see at the pump as consumers and what the airlines are seeing as they set pricing.”

Despite that acknowledgement, Leocha said his group would be “raising the question” about why airfares are remaining stagnant while gas prices are sharply dropping.

“When fuel costs were rising, airlines jumped at a chance to raise airfares and surcharges,” he said. “Now, they are taking a ‘not so fast’ approach. Consumers are losing in both scenarios.”

The group that lobbies for airlines in Washington, Airlines for America, has argued that taxes that are imposed by the federal government make up a larger portion of ticket prices than most passengers realize.

“As of July, 21 percent or more than $62 of a typical $300 domestic round-trip ticket comes out of your pocket and goes straight to the government, not the airlines,” the airline group wrote in a blog post on its website.

“Many passengers are unaware of this thanks to a government rule requiring airlines to publish the total ticket cost, including taxes as if they are part of the base fare,” the blog post continued. “Travelers often assume that the airline is charging the entire price of the ticket when, in fact, a large portion is made up of taxes and fees that the airlines actually continue to fight against.”

The airline group has also said the financial picture for U.S. carriers was not as cut and dry as passenger advocates like Schumer and Leocha have been suggesting.

“Declining fuel prices are good news for everyone as they lower personal costs and enable industries such as airlines that rely heavily on fuel to reinvest in their business and their customers,” the airline group said in a statement last month after Schumer’s call for an investigation.

“While fuel prices have abated from their historic highs, fuel is just one cost, and it’s important to note that for the first nine months for the nine publicly traded U.S. passenger carriers, operating expenses rose 3.1 percent in 2014,” the A4A statement continued. “This is a capital-intensive business, and airlines are making significant investments, including taking delivery of 317 new planes this year alone.”

www.thehill.com/policy/transportation/228527-airfares-not-impacted-by-gas-price-drop

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