Lower oil prices won’t change cost of flights

Oil prices have fell to their lowest level since April 2009

(AP Photo/Julio Cortez)

CHICOPEE, Mass. (WWLP) – Gas prices continue to give drivers a break, but it’s still just as expensive for them to book a trip.

Oil prices at the start of this year fell to their lowest level since April 2009. It’s been a welcoming break for drivers when they fill their tank and for airlines as they fuel planes for flights across the country and around the world.

If oil prices stay as low as they are, some economists predict airlines could save $20 billion this year. Don’t expect to feel the difference on your next flight though. It’s because fuel savings for airlines is a little more complicated than it is for drivers at the pump. Airlines spend the most money on fuel, so many of them buy contracts called hedges to protect them when oil prices soar or plummet.

“They assumed prices were going to rise. They locked in at a certain price. Since the middle of the summer the price of oil has been falling but they can’t take advantage of it because they’ve locked in at a higher price,” said WNEU Economics Professor Karl Petrick.

However, even with hedging losses, airlines will still save. They won’t be passing on those savings to consumers though, but why should they? Flights are full. Travelers are going to fly, and they’re going to pay all the fees that come with the trip.

Mark Teed, Springfield Financial Advisor, told 22News, “There are only so many seats they can sell, there are only so many flights. It’s a negotiable thing. They know prices have fallen but because supply and demand are so imbalanced: there’s more demand than there is supply, they can keep the higher prices for now.”

So, while airlines may not be enjoying the full break that drivers are for now, they won’t be on the wrong side of their hedge contracts forever. Oil prices will eventually rise again, and consumers won’t be protected by any locked-in rates.

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