Fuel-price decline will not mean lower Aspen airfares
December 15, 2014
Declining oil values have led to lower prices at the pump, as was evidenced locally last week when the Shell station at the corner of East Main and South Galena streets dropped the retail charge for a gallon of regular unleaded gas to below $4 for the first time in many years.
While it's getting cheaper to travel by automobile, don't expect the drop in fuel prices to result in less expensive airfares. Airline-industry observers say consumers in Aspen and just about everywhere else shouldn't expect to see much relief with regard to plane-ticket prices anytime soon — even though fuel accounts for nearly half of an airline's costs.
The reasons why airfares will remain about the same in 2015, despite a 40 percent fall in oil prices since June, are many. In general, though, the airlines will charge what they charge because they can, according to the industry watchers.
"With almost all of the carriers, at least the ones I work with, pricing is something they control," said Kent Myers, an aviation consultant based in Avon. "In the larger scheme of things, people need to realize that airlines have a business model and they have a right to make a profit."
Business and mainstream news outlets last week reported that average ticket prices might dip by 5 percent in 2015. That estimate came from the International Air Transport Association, which represents 240 airlines. The group's chief economist told The Associated Press on Wednesday that airfares wouldn't drop for many months because carriers are stuck with fuel contracts that predate the six-month slump in oil prices.
Then, on Sunday, the domestic industry organization Airlines for America issued a statement suggesting that in lieu of slashing airfares, airlines will look to reward investors and employees and reinvest many of the profits to improve their services.
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"Declining fuel prices are good news for everyone, as they lower personal costs and enable industries such as airlines that rely heavily on fuel to reinvest in their business and their customers," the statement said.
"Carriers continue to use improving finances to pay down the nearly $72 billion they are carrying in debt, acquire new aircraft, improve the onboard product, enhance airport facilities and amenities, reward employees through profit sharing and provide dividends to investors," the group added. "Customers also are benefiting from additional air-service options, and airlines are adding nearly 4 percent more seats to the marketplace for the coming spring period (more than 100,000 seats year over year) to accommodate growing demand for travel."
Airlines for America noted that carriers should be treated like any other business, using the Starbucks coffee-shop chain as an example.
"When the price of coffee beans falls, no one asks Starbucks why his or her latte does not cost less. You want Starbucks to expand its stores and products, give back to its baristas and reward investors. Airlines are no different," the group said.
But the issue has caught the attention of U.S. Sen. Charles Schumer, D-New York, who is calling for federal investigations of high airfares, questioning why they're not dropping along with fuel costs.
Schumer says with holiday travel approaching, the high cost of flying is painfully apparent to thousands of passengers. He's calling for the Department of Justice and the Department of Transportation to investigate why airfares are so high despite what he described as "record" airline profits and "rapidly declining" fuel costs.
According to the senator's office, the International Air Transport Association forecasts the airline industry's profits will grow from $19.9 billion this year by 26 percent to $25 billion next year.
On Friday, a spokesperson for United Airlines, which dominates commercial passenger service to and from the Aspen-Pitkin County Airport, declined to answer questions posed by The Aspen Times in an email concerning airfares and the local market.
"Due to anti-trust regulations, I'm unable to discuss potential future fare actions or pricing strategy," said Mary Clark, of the airline's media-relations office.
One question sought an explanation for why the airline is charging a winter rate of $464 (booked in advance) for a midweek round-trip flight between Aspen and Denver International Airport, which covers a distance of 128 air miles each way.
Meanwhile, the price of a flight between Aspen and Chicago's O'Hare International Airport, which has a one-way distance of 1,010 air miles, costs $542 (based on midweek rates). Despite the flight being 882 miles longer than the Denver trip, the ticket price is only $78 more.
"In general, airfares are highly competitive and are typically determined by conditions in specific markets, rather than the distance between cities," Clark wrote.
In the summer of 2012, United offered discount fares for locals flying to Denver: about $110 one-way and $162 round-trip. By summer 2013, that special rate was discontinued without explanation.
Airlines serving mountain resort communities such as Aspen or Vail face certain challenges, including rising and falling demand depending on the season, Myers said. Also, small airports in relatively isolated communities such as Aspen tend to have limited fuel-supply options, meaning the airlines are often at the mercy of a single supplier's pricing, he said.
"Airline fare pricing is a challenge to understand and to comprehend, because it's not really cost-driven," Myers said.
Bill Tomcich, president of reservations firm Stay Aspen Snowmass and a community liaison to the airline industry, said he believes fares to and from Aspen are fairly reasonable. He pointed out that a person can fly just about anywhere domestically for around $500 round-trip if the trip is booked well in advance.
United's flight between Aspen and Denver remains high, just as it does between Denver and other Colorado airports, because the airline doesn't want passengers to switch to a low-cost carrier after reaching the Mile High City, Tomcich said. It's a way of ensuring that the airline will carry passengers to their final destinations.
Generally, competition helps to lower airfares more than anything else, he said. Frontier Airlines left the Aspen market in 2012, but American Airlines and Delta Air Lines have boosted their local operations to provide competition to United Airlines in the Aspen market, keeping fares from getting out of control, Tomcich said.
He added that he doesn't expect fares to and from Aspen to come down next year in response to oil's decline.
The steep slide in oil prices has been commonly explained as the result of high global supplies, thanks in part to rising production in the United States, coupled with weakening global demand because of slowing economic growth in Europe and Asia.
The Associated Press contributed to this story.