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Low oil prices do not mean low air fares

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Air fares unlikely to fall with tumbling oil prices

Consumer groups and politicians are calling for airlines to pass on savings in fuel prices to passengers, but they are unlikely to do so.

Lower oil prices are part of the reason for a US$5 billion lift in profits in 2015 to US$25 billion. But airline executives and industry analysts at the Airline Economics conference in Dublin said prices would stay high as long as there is enough demand – except for reducing fuel surcharges on long-haul flights.

“Ticket prices are market-driven not cost-driven,” said Peter Davies, a former chief executive of Air Malta. Carriers have “very expensive systems and people thinking about how to maximise revenue, and they should do that regardless of the oil price,” agreed Ted Christie, Spirit Airlines’ chief financial officer.

Airlines will use cost savings through fuel to pay debt or improve cabins, said Helane Becker, an analyst at Cowen Securities: “Why should airlines cut ticket prices if demand is strong?”

Reuters

[pictured: Trent-900 engine fan blade; courtesy Qantas]

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