Airfare prices to remain high even as profits soar

Airfare prices to remain high

The nation’s airlines are reporting record profits, thanks mainly to the low fuel prices that started to drop back in 2014. The record income is unfortunately not translating to a significant reduction in airfares for customers. Airlines increased some fees last year and took other actions aimed at keeping their profits high. This hike led the Department of Justice to launch an investigation into whether the U.S. airlines purposefully conspired to keep fares high in part by limiting seating capacity. The probe was done in July of 2015, and the four largest U.S. air carriers —American Airlines, United, Delta Airlines, and Southwest Airlines confirmed that they were part of the investigation.

Airfares drastically dropped in the wake of the news of the probe. Airline stocks were also dramatically low at this time. Before July was over, the Labor Department reported that airfares had recorded their largest monthly decline in 20 years.

This is, in fact, good news for the consumers, but what is unknown to most of them is that the drop in prices is not reflective of the increase in profits for the airlines. It is only a drop in the bucket compared to the soaring profits the airlines recorded in 2015.

Before the falling oil prices, these airlines were struggling. A reduction in the oil prices meant a drop in their operating cost, since oil is one of the biggest expenses for the industry. It should be noted that oil prices fell by more than 30 percent. This fall in expenditure translates to record profit margins for the airlines. A keen consumer would expect a significant cut in airfares from the country’s major airlines in light of the increased profits. This has not been the case.

In hopes of pleasing their customers, some airlines have instead bought newer planes and remodeled some of their terminals. Airline executives insist that they are sharing these big profits with passengers by purchasing the new planes and providing better amenities. Some of the profits, they say, go to increase employee earnings. United, for one, plans to bring back free snacks to passengers in economy seats this February.

In earnings reports released recently, the nation’s biggest carriers reported profits that surpassed totals reported before the 2007-09 recession and the 2001 terrorist attacks.

Delta Airlines, which has grown steadily over the past few years, is one carrier that has seen its profits increase tremendously in a short span of time. The airline reported a whopping $4.5 billion in net income for 2015, compared with $659 million in 2014.

“Our 2015 performance was a record for Delta on all fronts,” said Richard Anderson, Delta Airlines Chief Executive.

Another factor that fired these high profits, besides the drop in fuel prices, is the increase in demand for air travel, which was up by 9 percent last year. Analysts say that as long as the demand for air travel is kept at a high, airlines will not be under any pressure to significantly slash airfares to reflect their continued increase in profits. Consumers should therefore not expect to pay less for air travel anytime soon.

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