TORONTO — Oil prices may be dropping but that doesn’t mean we’ll be seeing falling air fares any time soon, according to a number of analysts.
In the past falling oil prices were usually due to a recession or weak economic activity which led to fewer airline passengers and falling fares.
But this time, oil is falling because of oversupply and with OPEC saying it will not cut production, this glut is expected to continue in the short term.
In the meantime, planes are packed so there is no incentive for airlines to lower fares.
According to one analyst, North American airline earnings will climb 73% to US$19 billion because of lower jet fuel costs.
The analyst raised earnings estimates for nine U.S. and two Canadian carriers (Air Canada and WestJet) as a result of the sharp decline in oil prices.
Worldwide airline share prices rose 14% in November, supported by continued decline in the price of crude oil and jet fuel.
Crude oil prices are down 36% since the mid-year peak, reflecting appreciation of the U.S. dollar as well as continued growth in supply, particularly in the U.S.
Falling gas prices also put more money is consumer pockets and make them more likely to fly.
Another reason airlines are in no hurry to pass jet fuel savings on to passengers is the fact that carriers lost $58 billion from 2001 to 2009 before returning to profit in 2010.