How do oil prices impact flight prices?
At the beginning of 2015 we have seen an important drop in the cost of oil. While drivers could see a pretty fast difference when filling their gas tanks, I do not see any difference in flight prices.
I know the cost of oil in flight costs is important. It is even often priced to customers as a "fuel surcharge". I expect it is hard to predict the cost of a flight months on advance when tickets are sold.
So I am curious if airlines commonly practice some kind of price buffering regarding the cost of oil. As an airline customer, should I expect prices to vary in case of important variations of the cost of oil? And in that case, is there any knowledge of how long it takes for flight prices to reflect the cost of oil? I suppose that the reflection of the cost will be faster if the costs increase than if they decrease anyway.
Best Answer
I am not the expert on this matter, but I know a thing or two.
Airlines sell tickets in advance (way in advance) and in bulk, so a change in the oil price must be long in advance before airlines can act accordingly and change the fuel surcharge. If airlines acted quickly and changed the price according to the current low price and then a few weeks later oil prices go up again, then airlines are screwed because they would have sold many cheap tickets in the future when the price will be higher and the extra profit they made due to the low prices in the current period will not cover the losses in the future.
Another thing, it is a quick, unanticipated extra profit for the airlines, and who doesn't like that.
Regarding the price buffering, most (if not all) airlines make their fuel surcharge according to the highest possible fuel price they faced, and it is too dangerous for them to change it as I said earlier unless the prices are low for a long period.
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