Consider this advice from Darryl Jenkins, one of the airline industry’s prime pundits: “This isn’t a bad time to lock in a low fare for the summer. That’s for sure.” Indications are ticket prices may rise again this year.
Jenkins says the problem is the price of petroleum, precisely the “uncertainty” associated with those prices. In an effort to buffer themselves against possible further fuel increases Jenkins says airlines are “hedging” their costs by raising ticket prices. There have already been two such increases. There could be a third.
How high ticket prices rise could be “a function of how well the economy does,” he tells Cheapflights.
Expert estimates range all over the board as to how much airline ticket prices in North American might increase this year – from a low of around 2 percent to a ceiling of some 7.5 percent.
Consider the impetus. According to the Department of Transportation’s Bureau of Transportation Statistics www.bts.gov U.S. airlines’ average fuel prices rose 8.5 percent between December 2010 and December 2009.
Here’s how that affects airlines. Giovanni Bisignani, Director General and CEO of the International Air Transport Association says fuel costs account for 27 percent of airline operating costs. “A sustained rise in the price of oil could spoil the party,” he says. “With uncertainties in the Middle East, oil prices are now hovering in the $100 per barrel mark.” The IATA chief says for every dollar increase in the price of a barrel of oil over the year airlines are saddled with the unpleasant task of “recovering an additional $1.6 billion in costs.”
Having cut other costs to the quick, that could equate to higher ticket prices.
The Air Transport Association of America contends part of the problem behind increasing oil prices is speculation among traders, and they want to do something about it. The ATA wants the Commodity Futures Trading Commission to take action by reducing speculative position limits for energy. The airline industry trade group believes current proposed limits are simply too high.
ATA Vice President and General Counsel David Berg contends, “Excessive speculation, unrelated to the fundamentals of supply and demand, creates volatility in prices that simply cannot be effectively managed by the airlines.”
If oil prices are propelling flight prices higher there’s a chance the federal government could too. President Obama’s proposed new budget would raise the Passenger Facility Charge, or PFC, to $7 per flight, up from the current $4.50.
Passengers and airlines are already subject to a dizzying array of taxes and fees that can add significantly to the price of a ticket. According to ATA a base fare of $300 from Peoria to Raleigh/Durham via Chicago O’Hare is subject to $63.50 in taxes and fees. That’s 21.8 percent of the fare – over a fifth of the price.
The upshot of all this airline arithmetic: don’t wait for airline tickets to magically fall. Search Cheapflights, book early, and nail the best price you can – as soon as you can. Decent bargains are still out there.
Story by Jerry Chandler
