Photo: Håkan Dahlström/Flickr
The past two years of significantly cheaper gas prices haven’t made much of a dent in the price of airfare, but that has all begun to change. The airlines are finally beginning to pass those savings at the fuel pump onto customers.
The average domestic airfare dropped 9% in August compared to the same period last year, and the savings doubled to 18% in September. Finally – and thankfully – the cheaper cost of fuel is translating into cheaper tickets. But what took so long?
The answer is a bit complicated, but has much to do with fuel hedging, the practice of airlines buying years’ worth of fuel in advance for a pre-negotiated price. If the cost of oil spikes in that period, the airlines are protected. But if the price of oil collapses, as we’ve experienced these last few years, airlines can end up locked into a pricing scheme that bears little resemblance to the larger market. Delta and Southwest notably lost big last year when their hedges went sour.
But now, hedging periods have ended for multiple carriers, freeing them to take advantage of all that cheap fuel out there. By some estimates, jet fuel costs have now dropped 47% compared to just last year. And remember, the most savings that consumers are seeing so far is about 18% off their ticket price. So where is all of the extra cash going? Airlines for America spokesperson Vaughn Jennings says it’s all about infrastructure right now.
“Airlines continue to invest in new products and planes, pay down debt, reward employees and investors.”
Only time will tell if ticket prices continue to diminish. For now, enjoy the extra dough in your wallet.