airwave
Posts: 1105
Joined: Tue Mar 21, 2006 3:42 am

Fortune Magazine: "High Oil = Low Prices?"

Sat May 06, 2006 6:12 am

I just received the May 15th issue of Fortune today and in the "On the Radar" section (pg. 32), is the following brief. (Fair use excerpt follows.)

Quote:
(...)Though oil prices and airfares are still on the rise, don't expect it to last. (...) "Expect fares to fall, " says veteran industry pundit Joe Brancatelli. "It is what has happened every timeoil prices have spiked." One reason: Airlines always overestimate what business travelers will pay. So as walk-up fares increase, business travel decreases. To make up the shortfall, airlines start pricewars. It might all add up to reasonable summer fares.

Coming on the heels of what has been said on similar threads in recent weeks, I thought this was an interesting analysis. But what do I know?  Silly

Airwave  eyebrow 

My apologies if this has already been discussed, but my seach didn't discern anything. If this is a duplicate thread, please delete. Thank you.
When you do things right, people won't be sure you've done anything at all.
 
dtwclipper
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RE: Fortune Magazine: "High Oil = Low Prices?"

Sat May 06, 2006 6:16 am

Quoting Airwave (Thread starter):
(...)Though oil prices and airfares are still on the rise, don't expect it to last. (...) "Expect fares to fall, " says veteran industry pundit Joe Brancatelli. "It is what has happened every timeoil prices have spiked." One reason: Airlines always overestimate what business travelers will pay. So as walk-up fares increase, business travel decreases. To make up the shortfall, airlines start pricewars. It might all add up to reasonable summer fares

I would agree if this were 1980, 1990 or even 2000, but not now. NO Airline can afford a price war today.
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siromega
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RE: Fortune Magazine: "High Oil = Low Prices?"

Sat May 06, 2006 6:38 am

The only reason we'll see prices drop the slightest is if there is a economic pullback/correction or recession. And even then I'd expect airlines to park metal and reduce capacity rather than start a fare war.
 
khobar
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RE: Fortune Magazine: "High Oil = Low Prices?"

Sat May 06, 2006 7:06 am

Oil prices are artificially inflated due to so-called "jitters" about instability in the Middle East (at the moment the driving force is the farce over Iran's nukes. If no fuss had been made then oil would be down).
 
airwave
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RE: Fortune Magazine: "High Oil = Low Prices?"

Sat May 06, 2006 7:14 am

Quoting Dtwclipper (Reply 1):
NO Airline can afford a price war today.

And yet, isn't that exactly what will happen? It seems inevitable because it has *always* happened. All it takes is one airline adjusting prices noticeably for the majority to follow.

Airwave  eyebrow 
When you do things right, people won't be sure you've done anything at all.
 
MaxQ2351
Posts: 321
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RE: Fortune Magazine: "High Oil = Low Prices?"

Sat May 06, 2006 8:23 am

Quoting Khobar (Reply 3):
Oil prices are artificially inflated due to so-called "jitters" about instability in the Middle East

Wow, someone FINALLY understands why prices are so high!! The oil companies aren't gouging (well, maybe not as bad as people say they are). It's the damn NYMEX traders that inflate the prices like none other for something as simple as a rumor that Iran might advance their nuclear program or Nigeria may have more rebel attacks, etc etc. Exxon Mobil doesn't hike their prices on a whim like NYMEX traders do!!

Quoting Dtwclipper (Reply 1):
NO Airline can afford a price war today.

Well, yes and no. I don't know the exact figure on it, but WN's oil futures are set to run out in about 18 months or so, IIRC. Why has AA been building up it's ops out of DAL so significantly?? Why have they been offering free round trip tickets out of DAL just for joining AAdvantage?? AA is gearing up for the coup de gras on WN, out of DAL at least, once WN's oil futures run out. Why do you think AA got the nickname the "Sky Nazis"?!? As the only legacy carrier who has not declared bankruptcy, and is even expected to turn a decent profit for FY2006, they could probably easily eradicate WN out of DAL if they put a lot of resources into it. They may lose a lot of money doing it, but when was the last time AA cared about that, so long as another competitor was eliminated?!?! Air Cal, Reno Air, TWA, the list goes on.....

Personally, I say more power to em!! Once WN oil futures expire, AA prices out of DAL will be dirt cheap.......and, I've never been a big fan of WN anyway, so I'd probably secretly revel in it if AA was able to get rid of em'.

-Max
The 777-200LR......2 engines 4 longer haul
 
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Stitch
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RE: Fortune Magazine: "High Oil = Low Prices?"

Sat May 06, 2006 8:32 am

As WN's hedges start to expire, they are having to either raise their base fare or start adding "fuel surcharges". So that is raising overall fares. JB is correct in that the absolute last-minute "walk-up" remain extortionist, but the 3-day and 7-day unrestricted fares are close to what the 21-day and 30-day restricted up the yazoo ones are on some routes and dates, I have noticed.