Things in the Sky

As of this posting oil is trading in the low $80 range, more than $60 below its peak in July and about the same range oil prices were in the same time last year. Does this mean that we’ll see some decreases in fuel surcharges and fees? Well, it is certainly possible. WestJet, Air Canada, and Porter already did, just to name a few. Last week Northwest announced an additional reduction in its fuel surcharge on cargo shipments.

Personally, though, I think we are more likely to see fares hold steady or decrease slightly rather than a decrease significantly. The first reason is hedging, at least in part for some airlines. While the current price of crude might be low, some airlines already hedged at a higher price*. For example, Alaska said last week that losses on hedging will contribute to a third quarter loss. The second, and more important issue, is the capacity cuts. Many of the airlines have cut seat capacity significantly, and I think it will keep fares up.

In terms of fees, I don’t think they will be going away anytime soon, even though I would love to see that. Even though fuel has gone down, the fees still help the airlines – the extra revenue they generate can just go somewhere other than fuel expense. PlaneBuzz reported earlier that US Airways has found some benefits of charging for all beverages. There’s also a strong possibility (as explored last week) that the number of mishandled bags will go down as there is less luggage going through the system due to checked luggage fees. On a related topic, Brett had a great post on a la carte pricing on his BNET blog.

*On a related note, I wouldn’t be surprised if consumers who locked-in heating oil prices for the winter this summer will pay higher than market prices.

Edit: According to myTransponder on Twitter, US carriers are starting roll back fuel surcharges on European flights!