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Airline Stocks Tank (and Why That’s Good News)

SmarterTravel

Yesterday, United’s stock price plunged more than 10 percent; Southwest was down more than 9 percent. Other airlines’ share prices were similarly hammered.

You’ve followed Warren Buffet’s oft-repeated advice to avoid buying airline stocks, so you don’t care, right? As a traveler, though, you should care. And furthermore, you should smile.

That’s right. As so often happens, what’s bad for the airlines turns out to be good for their customers.

In this case, the falloff in stock prices was triggered by concern that the airlines have been adding flights faster than demand for travel has been increasing. Although the airlines did a respectable job of aligning supply with demand after the 2008 recession, that “capacity discipline” has been eroding as the economy strengthened and fuel costs declined. During just the past year, U.S. airlines have added almost 5 percent more seats.

In short, the airlines have reverted to their greedy pre-recession ways, chasing after market share at the expense of profitability. The prognosis: too many seats chasing after too few customers. And that leads to fare wars and skimpy profits.

That’s good news for flyers in two respects. First, as seats proliferate faster than flyers, load factors, currently averaging more than 80 percent, should ease up a bit, lessening the claustrophobia effect of packed planes and tight seating.

And second, while we’ve yet to see all-out fare wars, domestic airfares for summer travel have remained flat year-over-year, which means they’re down slightly when adjusted for inflation. And international airfares for summer 2015 are down a solid 3 percent from last year. The trend is downward, and should accelerate through the summer.

With the steep reduction in fuel prices, travelers and consumer advocates have been calling out the airlines to lower their ticket prices, to no avail. In the end, fittingly, it looks as though it will be the airlines’ own greed that finally drives down airfares.

This article originally appeared on FrequentFlier.com.

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