The effects of the decline of oil prices are affecting the price of jet fuel. The surprising plunge in oil prices is finally making private and commercial air travel cheaper. However, many people may not have noticed unless they fly a low–cost airline. Last year, the Bureau of Labor and Statistics released numbers that showed that average ticket prices fell by approximately 5.6 percent in July 2015, which was the largest single–month drop in nearly 20 years. Jet fuel, the largest overhead expense for airlines, has also tumbled. Obviously, the decline in the price of oil is good news for carriers that now have extra cash on hand. However, how they choose to use
Rather than passing on the savings to the consumer, the giant airlines posted huge profits in the first two quarters of 2015. For example, United Airlines profit of 1.2 billion dollars in the second quarter of 2015 was the biggest in its history. In June, IATA raised its profit outlook for carriers in the US to $15.7 billion, which was an increase of $4.5 billion in 2014. Most airlines are taking advantage of the falling oil prices to invest in their business. This is a smart strategy, given that oil prices are so low.
Budget carriers are much bigger than they were a couple of years ago. With the falling fuel prices, they have heartened to lower their base fares even further. Consequently, they have been growing at an unprecedented rate. They have seen impressive increases in market share, which means that competition is increasing in the aviation industry. This phenomenon was described as the Southwest Effect by the Department of Transportation. The big airlines cannot afford to ignore this shift. Though most of their business comes from business and first–class travelers who often do not see much change in prices, the large airlines can also choose to devote some of cheaper seats to ultra–cheap fares to vie for some of the budget carriers’ customers.
The fall in oil prices has been good news to airlines. However, AvGas continues to be sold at rather high prices and many consumers are wondering why there is such a marked difference in price falls. According to experts, AvGas is highly refined, with precise octane ratings to keep it resistant to detonation. Consequently, there has been an intense discussion on the use of MoGas over AvGas within the aviation community. Other contributing factors to the higher cost of AvGas are that it produced with far higher quality control and is manufactured in smaller quantities.
Still, there is good news for travelers who are hoping for the cheapest flight possible. As oil prices continue to fall, experts expect to see lower prices. The fall in the price of jet fuel could also bring the airline industry back to earth. Recently, airlines have achieved impressive margins, which seem to have lifted them out of a boom–and–bust cycle. However, with demand shifting all the time, the price of oil will continue to be set by the market.