MCT CampusSAN JOSE 8212; Prompted by a plunge in jet fuel prices, airfares have been dropping just in time for the holidays, offering a relatively bright spot amid the economic gloom.
But don’t get giddy yet.
Although fuel costs have fallen 50 percent since July, the average airfare 8212; which previously had increased as fast as fuel prices 8212; has come down by only about 17 percent, according to an analysis of 100 U.S. travel destinations by Farecast, a unit of Microsoft.
And while some experts say ticket prices are likely to slide further, others are skeptical, noting that the beleaguered airline industry desperately needs to ramp up profits.
“I am expecting 2009 to have some very stiff price increases,” Rick Seaney of www.FareCompare.com said, which also tracks ticket costs. He feels that way because airlines have been aggressively cutting flights, which makes the planes they still fly fuller and increases competition for available seats.
“It’s an industry that’s sick and it has a chance to get well next year with higher prices,” Seaney said.
Travelers are taking notice. Riverside resident Rick Leake, 48, flew to San Jose last week to meet with doctors about his company’s medical-laboratory services.
“I’ve seen quite a bit of a drop in the past couple of months,” said Leake, a frequent flier who was dismayed at the prices being charged over the summer.
To lure more customers like Leake, airlines have reduced fares, even during the holidays, when busy travel normally pushes ticket prices higher.
In some cases, the savings have been substantial, causing those who booked flights months ago to kick themselves for not waiting until now.
“People say, “Oh gosh! I bought my ticket and now it’s $200 less,'” Michele Miller of Los Gatos Travel said.
What all this will mean for consumers in coming months is anyone’s guess.
With the economy in meltdown mode, airlines will be doing all they can to attract customers, said Vaughn Cordle, chief analyst with the research firm AirlineForecasts, which predicted ticket prices could drop at least 7 percent on average next year.
“They’ve got to bring down fares,” he said. “It’s a great time for consumers.”
But airlines have to be careful about slashing prices too much, said David Castelveter, spokesman for the Air Transport Association of America, an industry trade group.
“We don’t know where the price of fuel is going to go,” he said.
Moreover, because U.S. airlines are expected to lose a combined $4 billion to $6 billion this year, they need to keep some of the fuel-cost savings for themselves, Castelveter said, adding, “the carriers have to at least get back to break-even.”
But the airlines may face pressure about how much of those savings they can keep. Sen. Robert Menendez, D-N.J., complained in a letter last month to airline executives that fares should be tumbling as fast as fuel prices. On Nov. 10, Menendez issued a news release declaring, “We still have yet to see airfares come down across the board.”
The drop in fuel prices was preceded by some tough months for the traveling public. First came the blow from soaring oil prices. That sent the price of jet fuel from about $2.70 a gallon at the beginning of 2008 to more than $4.25 by July. As a result, airlines ratcheted up their ticket prices partly by imposing fuel surcharges, while tacking on fees for everything from pets to second checked bags.
Now the faltering economy 8212; as well as the fall in fuel prices 8212; could help passengers. The business slowdown has led to cutbacks in travel by businesses and individuals.
For the first eight months of this year, passenger traffic on U.S. airlines was down 1.4 percent from the same period last year, according to the U.S. Department of Transportation. And in August, the agency’s most recent data, it was down more than 5 percent.
The trend is likely to continue, some experts say. Of 196 corporate travel managers surveyed by the Business Travel Coalition last month, one in four said their companies had imposed travel restrictions in the past few weeks in response to the global financial crisis.
With fuel prices low and fewer people flying, the coalition’s chairman Kevin Mitchell predicts “prices are going to slide.”
