Airlines and oil prices – is media anti-biz or really that dumb?

Posted: December 19, 2014
Written by: Paul Entin
Category: Economics

Newscasters on CNBC, Fox, CNN, Bloomberg and other stations have asked their guests in recent weeks why airlines won’t cut their prices since the price of oil and, therefore, jet fuel, has dropped. Framing the discussion in this way implies the price of a ticket is determined based on the input costs. Of course, it is not, and to even imply that reveals a stunning lack of business acumen from journalists who claim to be experts in the field.

The price of a ticket is based on how much we consumers are willing to pay. Period. If we all stop flying then we’ll see prices drop.

Even with this anti-profit media coverage of airlines and oil prices, people keep flying as much as ever. In fact, many frequent travelers would rather see flights added then prices cut. The fact that planes fly fully stuffed nearly every time suggests we’re more likely to see a price increase based on consumer demand far before we see a price decrease based on media hype.
In fairness, the airlines started this storyline when they claimed the prior round of price increases was necessary to offset record-high fuel costs, per this ABC News story.

So if fuel prices were the reason they went up then consumers are certainly right to expect ticket prices to drop as fuel prices drop. You can’t have it both ways. Wait. They can. They’re the airlines.  

 




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