Why Do Airfares Keep Going Up While Airlines’ Fuel Costs Go Down?

(kevindean)

The bad news: While the price of jet fuel is dropping, planes are still packed full of people and airfares are still on the rise. But is there a silver lining of good news for travelers, or are airline bosses just rolling around on beds made of money and laughing at us as we grumble about a ticket home for the holidays?

The good news is that no, airline executives aren’t making cash quilts to snuggle up under every night. So why aren’t those savings from jet fuel isn’t passed on to the customers in the form of lower fares? Instead, Scott Mayerowitz of the Associated Press explains, airlines are using that money in a way that could benefit consumers by way of newer, more fuel-efficient jets and to pay investors.

With airlines selling a record 85.1% of their domestic seats, they don’t really have any reason to lower fares when the money can be spent on things like an airline’s operating costs: There are salaries and benefits to pay, lease payments for airplanes, maintenance and fees for landing at airports, food and drinks, marketing, and the cost of a reservation system.

Airlines are not only buying newer planes, they’re updating and investing in airport terminals and computers, with U.S. carriers spending about $10.2 billion on capital improvements in the first nine months of this year, according to trade and lobby group Airlines for America. That’s the highest pace since the 9/11 attacks, adds Mayerowitz.

If you’re an investor, you’re likely happy the money isn’t going back to travelers, as carriers like American Airlines are finally paying out dividends. This year was the first time American had paid a dividend in the last 34, while Delta Air Lines brought back its payout last year. Southwest Airlines boosted its payout by 50% this spring, after paying a dividend every year for more than 37 years.

In the meantime, I’ll continue to grumble about the insane cost of a ticket to the Midwest in my little corner over here.

Why airfare keeps rising despite lower oil prices [Associated Press]

by Mary Beth Quirk via Consumerist