Low oil prices mean cheap airfare, right? Maybe. Maybe not.
Many oil-producing countries may be fretting over the falling prices of their product, but nearly everyone else is enjoying this development. Except, perhaps, air passengers, who may or may not see lower fares in the coming year.
The International Air Transport Association (IATA) reports that the drop in jet fuel prices should boost the industry鈥檚听, or an average profit of 3.2 percent. Profits expected by the end of this year will be $19.9 billion, the association said.
Average airline profit margins haven鈥檛 been this high since 2010, when they were 3.1 percent.
So far there鈥檚 been no relief for passengers,听, mainly because carriers are still using fuel that they bought months ago at higher prices. Since June, the average price of crude oil has plunged from about $115 per barrel to under $70 now. But in 2015, the group says, it expects an average oil price of about $85 per barrel. ()
鈥淭he industry outlook is improving,鈥� IATA CEO and Director General Tony Tyler听听on Dec. 10. 鈥淭he global economy continues to recover and the fall in oil prices should strengthen the upturn next year.鈥�
, 鈥淲hile we see airlines making $25 billion in 2015, it is important to remember that this is still just a 3.2 percent net profit margin. The industry story is largely positive, but there are a number of risks in today鈥檚 global environment 鈥� political unrest, conflicts and some weak regional economies 鈥� among them.鈥�
For example, IATA said the airline industry in North America is expected to perform the best next year, due in large part to industry consolidations. North American airlines鈥� profits are seen reaching $13.2 billion, up from the $11.9 billion expected this year. In Europe, though, the margin is likely to be 1.8 percent, IATA said, due to 鈥渉igh regulatory costs, infrastructure inefficiency and onerous taxation.鈥�
And what about air fares? That鈥檚 simple: IATA says average fares for air passengers probably will be 5.1 percent lower in 2015 than this year, once the airlines use up all the fuel they bought earlier at higher prices.
听
Yet John Heimlich, IATA鈥檚 chief economist, noted that airlines, especially those based in the United States, have been busy reinvesting in themselves at the highest rate in 18 years, including improvements to planes, upgraded airport infrastructure, along with increased dividends to shareholders and more pay for employees. ()
鈥淚t is critical to make the investments now and capitalize on the current environment,鈥澨�.
Besides, airlines lack the motivation to reduce fares. Thanks to mergers in the industry, many flights are now full, demonstrating a demand that can fetch a high price.
In fact, one trade group, Airlines for America, argues that air travel is relatively inexpensive even at today鈥檚 prices when adjusted for inflation. It reports that while overall consumer prices in the United States have risen 35 percent since 2000, air fares have gone up by only 22 percent. This includes the many fees the airlines have tacked on to fares to increase revenues.
So despite the drop in fuel prices, it鈥檚 an even bet whether your next airline flight will cost you less.
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