Will Airline Prices rise?
6/19/2009 2:36:17 PM Link
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Joe Starkeys article in the New York Times talked about how airlines are lowering capacity and had experts predicting that airline prices might rise after the cuts. So this is the best time to fly.
Joe Brancatelli says this is not true and argues that the only thing that will effect prices is demand.
"The fare increase shouldn't come as a surprise since oil prices have more than doubled since bottoming out in the mid-$30 range last fall. Besides, the $10 one-way increase isn't likely to matter much since airlines weren't selling tickets at the lower fares and, as far as I can tell, the carriers still can't raise the price of not flying. The route and capacity cuts, which have been coming in waves since last summer's oil shock and the economic collapse of the fall, is more of the same: You can't deprive a traveler of a seat when they aren't flying in the first place."
"But logic has never been the strong suit of many of my colleagues in the mainstream media. They came to the astonishing conclusion that capacity cutbacks at the airlines will lead to your paying higher prices to fly this fall. No matter that they leapt to the same bone-headed conclusion when the airlines slashed capacity earlier this year, late last year, last summer and, with vary degrees of permanence, since 9/11."
"So let me spell it out again for them and for any of you who misunderstand basic economics: The price you pay to fly has almost nothing to do with the number of airline seats that airlines choose to operate. The only thing that drives up the price of an airline ticket is demand. If you want to fly, the airlines can raise the price you pay. If you don't want to fly, or if airlines raise published fares too high, the lack of demand drives the price of travel down."
"Got that? Airlines can slash their route networks and it doesn't mean a thing to the price of tea in China or the price you pay for a seat. The only thing that drives price is demand. Whether they fly one seat or a million, the only thing that matters is what you are willing to pay for it."
"Only demand matters. And, lately, no matter how low the airlines price their seats, there is no demand. According to the government, there were about 162 million "revenue passenger enplanements" during the first three months of this year. That's down more than 10 percent--or about 19 million--compared to the first three months of 2008.
Demand down, prices down. That's how it works, folks."
SUPPLY, DEMAND AND THE AIRLINES
By Joe Brancatelli