Low Oil Prices Won’t Mean Low Airfares
Travelzoo Explains the Anatomy of a Flight Ticket and Why Plummeting Oil Prices Won’t Immediately Benefit UK Consumers
Chancellor George Osborne announced this week that the five year low cost of oil should be passed on to the consumer via lower flight prices, sparking much debate about potential cost reductions flight travellers can expect in the coming weeks. Travelzoo’s flight Deal Experts predict that the main beneficiaries will be travellers who opt for a driving holiday either at home or on the continent and that flight prices are not likely to drop in the immediate future.
Joel Brandon-Bravo, Travelzoo’s UK managing director, said, “Historically, low oil prices have not necessarily led to an immediate fall in flight prices. For the major airlines we would however expect some softening of the headline price in the medium term as the fuel surcharges will inevitably fall. This will probably take around six months because the airlines have hedged positions that protect them from volatility in the fuel market (either way) but they will now be working to unwind the hedges and take advantage of lower fuel costs.
“It is also typical of the government to point the finger of blame at the travel industry when up to half of a flight’s cost is often made up of taxation and other fees airlines are obliged to pay to airports and authorities. The British public will no doubt be surprised to hear that many airlines are operating at a less than 1% margin, even with falling fuel prices. Fuel costs make up around a third of the total cost for airlines such as British Airways, but this percentage can go up to over 50% for the low-cost airlines.
“At this stage the only immediate benefit will be for those who opt for a driving holiday – especially if they drive to Europe where the weak euro is also offering good savings on accommodation and food.”
Flight prices are notoriously complicated to understand and Travelzoo’s consumer research showed most people are completely baffled as to where the money goes from their plane ticket. To clarify the situation Travelzoo has broken down the ‘anatomy of a flight ticket’ to help explain to confused consumers where the money goes when they book a flight. (See Travelzoo Flight Price Infographic)
Travelzoo’s flight Deal Experts don’t anticipate dropping flight prices for the following reasons:
- No business wants to manage on the short term. Oil pricing is very volatile. Just because it is down right now, doesn’t mean it won’t spike again quickly.
- Airlines often hedge their oil purchasing. As such, the cost is fixed for a period of time. Adjusting fares based on market rates when their cost is fixed doesn’t make sense.
- Fuel is just one cost that goes into fare pricing. Airlines state that operating expenses have in fact risen by up to 3% over the past year.
- Just because fares haven’t dropped doesn’t mean passengers aren’t getting additional value. Many airlines are re-investing their profits into providing product improvements. That could mean kitting out planes with Wi-Fi or offering perks for the various fare classes – including economy.
- Lastly, but most important of all, there is no incentive for airlines to lower prices; demand remains high and planes continue to be packed.
Travelzoo’s top tips for getting the best flight bargains:
- Sale prices are not as low as they used to be, so if you see a particularly low fare you should act on it immediately. Airfare prices fluctuate and the number of seats at a sale price is often very limited, so the deal you have found won’t be available for long.
- For the inside track on great airfare deals, follow the Travelzoo and Fly.com Twitter feeds, as well as your preferred airlines. Fly.com – Travelzoo’s flight search engine – features the day’s best flight deals, which are constantly updated.
- Start searching as early as possible – the further out you are from your travel dates, the more likely you are to get a good deal.
- If at all possible, be flexible with your travel dates and times. You would be surprised at how much of a difference one day can have on your wallet.
Visit Travelzoo for further information.
Travelzoo is a global media commerce company. With more than 28 million members in North America, Europe, and Asia Pacific and 26 offices worldwide, Travelzoo® publishes offers from more than 2,000 travel, entertainment and local companies. Travelzoo’s deal experts review offers to find the best deals and confirm their true value.
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