Friday, February 6, 2015

Fuel prices dropped by 40+ percent , but Airlines are not cutting down prices.

I am a bit annoyed thought it seems kind of accepted industry practice when any savings due to price reductions are not transferred to customers.

We can see how the price dropped from IATA. Based on a WSJ article Airlines spend 29% on fuel. So if I take a very simple example of $100 cost per person (while airline charging me $120 assuming $20 as margin) the fuel cost itself used to be $29 and its now $24. So the cost to the Airline is now $95 and the ticket should be reduced accordingly (20% margin gives me $114). However I still see the same old rates and not even a single cent reduced. In fact the opposite is correct. i.e. the ticket prices are going up recently.

The explanation given by Airlines doesnt impress me either. From our own ST article here, it appears some are reducing (which I can't see) but our own SQ is not going along the same route.

I don't understand the logic of investing in lounges, upgrading flights or returning to share holders taking priority over business. May be the last one makes sense to me but the savings due to external factors can't be used to fund the capital expenditure activities which are part of day to day business. Unless there is a huge demand for upgrading flights or investing in lounges for airlines regular passengers (which I found quite weird as any flight I take can see less than 10% frequent flyers) so is it the airlines saying the 10% spending more money compared to rest of the 90%?

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