12.15.2014

Schumer questions high airfare pricing while gas costs drop

From Schumer's office: 

SCHUMER: AS FUEL COSTS PLUMMET, AIRFARES FOR NYERS THIS HOLIDAY SEASON REMAIN EXTREMELY HIGH- CALLS FOR FEDERAL INVESTIGATION INTO WHY DRAMATICALLY LOWER FUEL COSTS & RECORD AIRLINE PROFITS ARE NOT BEING PASSED ON TO CONSUMERS THROUGH LOWER FARES

Fuel Prices – Which Can Make Up Half of an Airline’s Costs – Are Lower Than They’ve Been in Decades, And Continuing to Drop, Yet Airlines Have Not Sufficiently Lowered Ticket Prices; Fuel Surcharges & Other Add-ons Remain, and Many Can No Longer Be Justified By Airlines’ Profit Margins

Schumer Urges the Departments of Justice and Transportation to Investigate, On Behalf of American Fliers, The Cause of Sky-High Prices; Air Travelers Paying 10% More This Year Than 5 Years Ago

Schumer Also Asks Feds to Include in Examination Whether Recent Mergers and Less Competition Is Creating Even “Stickier” High Prices

With holiday traveling season in full swing and the high cost of airfare painfully apparent to thousands of travelers, U.S. Senator Charles E. Schumer today called for the Departments of Justice and Transportation (DOJ and DOT) to investigate why airfares are extremely high, despite record profits for the airlines and rapidly declining fuel costs. According to the International Air Transport Association, the airline industry’s profits have risen this year and will grow 26 percent next year, reaching $25 billion. In addition, fuel prices are dropping quickly; they have dropped by 40% since June of this year and are currently at about $60/barrel. Fuel costs make up nearly half of an airline’s costs, yet despite these major savings, Schumer today said that the price of airplane tickets have increased more than 10% over the past five years. Particularly concerning to Schumer is the fact that some airlines are still charging fuel surcharges and other add-ons to ticket prices, even in these profitable times, which the airlines have always justified by their thin margins and limited profitability. What’s more, airlines are quick to increase prices when fuel costs rise, and Schumer is asking the DOJ and DOT to also consider in its examination whether recent mergers and less competition are creating even “stickier” high prices.

“At a time when the cost of fuel is plummeting and profits are rising, it is curious and confounding that ticket prices are sky-high and defying economic gravity,” said Senator Schumer. “So I’m urging the feds to step in and do a price investigation on behalf of consumers who must buy holiday travel tickets that can break the bank. The industry often raises prices in a flash when oil prices spike, yet they appear not to be adjusting for the historic decline in the cost of fuel; ticket prices should not shoot up like a rocket and come down like a feather. That is why I urge the DOJ and DOT to immediately investigate why airline profits are not more efficiently being passed down to consumers.”

Recent reports have indicated that airlines are now making record profits. According to the International Air Transport Association, airlines’ collective global net profit in 2014 is expected to be $19.9 billion and in 2015, is expected to be $25.0 billion. In 2013, airline profits were approximately $11 billion. Per passenger, airlines are expected to make a net profit of $7.08 in 2015; this is up from the $6.02 profit per passenger in 2014 and $3.38 profit per passenger in 2013. In addition to record profits, fuel prices are dramatically falling and will continue to drop. Fuel prices are currently about $60/barrel and according to the International Air Transport Association, the average oil price in 2015 is expected to be $85/barrel; in years past, the average oil price has been above $100/barrel. Fuel costs make up nearly half of an airline’s costs and according to the Seattle Times, airlines are paying 7.2 percent a gallon less for fuel than last year.

Schumer today said that in years past, when oil prices increased to over $100 a barrel, some airlines tacked on a fuel charge which was justified by airlines’ limited profits. Oil futures for the American benchmark settled at $60.94 a barrel in New York on Wednesday. Similarly, Schumer today said that with declining fuel costs, airfare prices should be adjusted accordingly. Instead, airfares have increased 10.7 percent over the past five years, after adjusting for inflation, according to an Associated Press analysis of data from the Airlines Reporting Corp., which processes ticket transactions for airlines and more than 9,400 travel agencies, including websites such as Expedia and Orbitz. Schumer said that given the fact that airlines are expected to experience a $25 billion profit margin next year, it is deeply concerning that these surcharges and fees are still being passed onto consumers. According to a Newsday report, travelers flying domestically from Kennedy or LaGuardia airports this year will pay 3% more than last year, with an average of $498.31 round-trip, including taxes and fees paid at time of ticket purchase.

Schumer today asked that the DOJ and DOT immediately investigate the cause of stubbornly sky-high prices on behalf of American fliers. One part of that examination, Schumer urged, should be whether recent mergers and less competition have played a role in today’s high airfares.

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