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Dropping Oil Prices Don't Mean Lower Airfares


The AP reports that even though oil prices have dropped by a third since hitting record highs in July, customers haven't seen a correlating drop in airfares. Nor should they expect to anytime soon.

The AP points out that while the recent ease in fuel costs has been great for the airlines in the short term, prices are still hovering around 25 percent above what they were last year. This has airlines reluctant to lower fares, out of fear that prices could go up again. Instead, airlines like Frontier and American are looking to new pricing schemes that appear to fairly distribute amenities based on what people are willing to pay, theoretically giving customers the ability to fly as cheaply as they can.

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Readers here at SmarterTravel.com, however, don't seem impressed with these pricing structures, and still wonder why airfares, or at least fuel surcharges, can't be lowered in response to cheaper oil prices. It's a valid question—I've watched prices at gas stations in my town drop precipitously in the last few days, from around $3.34 on October 5 to $2.99 in some places on October 8. Gasoline prices are probably easier to adjust than airfares, but why can't the airlines give passengers some relief?

The answer, in large part, is the economy, which has people tightening their wallets and cutting back on discretionary spending such as leisure travel, leaving the airlines in a lurch. With fuel still significantly more expensive than it was last year, carriers can't afford to slash fares too much, meaning airfare is quickly becoming prohibitively expensive for much of the traveling public. Most airlines have tried to offset this drop-off in demand by reducing capacity, but at some point, something has to give. Perhaps airlines will become so desperate for business that they'll say a prayer and cut fares no matter what oil costs, or maybe oil will continue to drop, allowing airlines to cut airfares while maintaining the revenue they need to survive. We'll just have to wait and see.

But for now, and likely through the holiday season, it appears fares will be staying high.

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