The airline industry saves $170 million a year every time the price of a gallon of jet fuel falls a penny, and jet fuel costs right now about 25 cents less than a year ago. So far, none of that is ending up in passengers' pockets.
Airlines are keeping the savings for themselves and looking forward to bettering record 1997 profits of $5.3 billion. Why? Because they can.The nation's strong economy has created a heavy demand for air travel. Planes are more than 70 percent full on the average flight, largely business people who typically pay the most expensive fares.
The industry's willingness to defy gravity isn't lost on some passengers.
"I think I paid too much," said Judy Szugda of Derry, N.H., sitting in Ronald Reagan Washington National Airport during a layover on a $349 round trip to West Palm Beach, Fla.
"I didn't have much selection in flights, and I'm not happy knowing how much they've been saving," she said.
There's a similar feeling in corporate travel offices, where a collective gag arose last year as the cost of business fares rose by close to 17 percent, based on the American Express Airfare Index.
Terry Trippler, whose "Airfare Report" tracks all major fares, said he's seen no major pricing changes in the past two months except for sales to fill leftover seats.
"The airlines are in a mode right now, `Make as much as you can as quickly as you can,' and they are succeeding in that," Trippler said. "The airlines have their eye on Wall Street right now, and I wish they would put it back on the traveler a little bit."
David Swierenga, chief economist for the Air Transport Association, concedes that fuel savings haven't been reflected in the price of airline tickets. He expects that may change soon.
"Keep in mind that labor costs are continuing to go up, as well as other costs including the cost of airplanes," he said. "But nonetheless, I am expecting that (ticket) prices will be lower in 1998 than in 1997. And that is based on the long-term relationship between costs and prices in the industry: When overall costs go down, so do fares."
There is much more to ticket pricing than the cost of jet fuel, said Joe Hopkins, a spokesman for the nation's largest carrier United Airlines.
"Airfares are driven by supply and demand and by competition," Hopkins said. "We also do make tens of thousands of changes in the airfare structure every day."
He said United spreads out its fuel purchases on the spot and future markets so ticket prices won't shoot up and down with each fuel spike.
The American Society of Travel Agents recently urged the airlines to cut their fares. Travel agents, who receive a cut of any ticket they sell, believe lower fares would trigger more buying.
"The lower cost of jet fuel presents the airlines with a rare opportunity to reward the consumers that have been responsible for the industry's record profits," said Mike Spinelli, a Lowell, Mass., travel agent and president of the society.
The drop in fuel prices is a major contributor to the boom times being experienced at the airlines. Fuel accounts for 15 percent to 25 percent of an airline's operating costs, so a drop in the price makes a noticeable mark on the bottom line.