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Could Rising Oil Prices Actually Help Airlines?

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A recent report, titled, “High Oil Prices Are Good for Airlines,” has been making the rounds this week, leading many to wonder if the supposition is true. The idea is that rising fuel costs force airlines to be more disciplined and seek out new revenue sources, the latter of which, as we’ve seen with bag fees, tend to remain even after fuel prices come down.

The argument makes sense. As costs rise, funds get tight, and airlines have to be creative in maintaining their profit margin.

But rising fuel prices certainly don’t do the consumer any good. The last time prices were this high, in the summer of 2008, customers were blitzed by new fees, increased fees, and almost weekly fare hikes. Currently, jet fuel is sitting at around $106 per barrel, and has risen 20 percent in the past year. The International Air Transport Association, a global airline trade group, estimates that rising prices tacked $22 billion onto airlines’ fuel bills in 2010. Who do you think is paying for all that?

Fortunately, airlines learned their lesson last time oil was this expensive. Following the summer of 2008, when jet fuel spiked to $180 per barrel, airlines cut capacity in large chunks, little of which has been added back since. Obviously the recession and subsequent drop in travel demand was a major factor in these cuts, but the result is the same. Airlines are flying much leaner operations these days, with fewer seats available even as travel begins to pick up again. The downside is that fares are up because the supply/demand equation is tilted in the airlines’ favor. The upside is that airlines are better positioned now than they were in 2008 to absorb the rising costs of fueling their planes.

To a point, at least, but certainly if oil prices continue rising (which, unfortunately, many analysts are predicting), airlines may be forced to implement surcharges or raise ancillary fees, in addition to jacking up fares (which they are already doing anyway).

The takeaway for travelers? Watch those oil and jet fuel prices. As goes the cost of fuel, so goes the cost of airfare and fees you’ll have to pay to fly.

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