Airlines & Fuel Prices: How Our Media Leads Us Wrong

The media tries to make us want higher prices in how they report on fuel prices and airlines.

jet fuel

We have discussed on this blog before how our elites hate low prices. The bizarre way in which this shows up in our media is on display in this Bloomberg Businessweek story: “How Cheap Oil Could Become a Real Problem for Airlines.”

For roughly the past 35 years, inexpensive jet fuel has routinely served as a siren call to airline executives. Cheap fuel spurs more flights and wild grabs for whatever business looks attainable in the travel market. Marginal routes become profitable with lower fuel prices, which, in turn, bolsters the argument that new flights can boost revenues with little cost. Cheap fuel also lets an airline experiment more radically with flight schedules in the bid to swipe market share from rivals.

“If it keeps trending lower, it totally changes the economics of the industry again,” says Seth Kaplan, managing partner of Airline Weekly, an industry journal. With oil cheaper, Kaplan predicts that many airlines will probably fly their planes in off-peak periods because of the low costs associated with those extra flights. A few additional flights on the weak travel days of Tuesday and Saturday could return to some schedules.

Shouldn’t this be wonderful news? More flights! New flights that used to not make economic sense! New schedules that are customized to attract you and me to buy plane tickets! In other words, you and I are about to get new offers of convenient flights at lower prices.

What is wrong with that?

[See also, “Do Lower Energy Prices Have a Downside?]

The article takes the point of view that the only way for airline companies to prosper is to have a steady source of customers so that they never try to win more of them from other airlines. It reports that experts are “concerned” that “if oil stays cheap enough for long enough, lower prices will cause airlines to backslide on their new-found religion against deploying too much capacity.”

Restraint from “deploying too much capacity” is like OPEC trying to reduce production in order to make prices higher. Somehow, at a higher price point for oil, the airlines were able to act like a cartel. (I’m highly suspicious that government regulation must have been part of the means of protecting this market, but I don’t know enough about the industry to confirm or deny that suspicion.) Then this:

“We feel like this industry needs an oil spike now more than ever,” Wolfe Research analyst Hunter Keay wrote last week in a client note. “[C]apacity discipline of late (from some) seems theoretical at best.”

So airlines suddenly getting adventurous and trying to win business from one another by pushing down prices or making new flights available is bad? What does this kind of statement mean? We constantly hear about how the economy is shaky. Does this reveal that there are people who are comfortably making money right now and who want the economy to stay weak?

It sure sounds like it.