The Joplin Globe, Joplin, MO

Business

June 4, 2012

Don’t expect lower airfares, analysts say

ATLANTA — When fuel costs rise, airlines often raise fares. So now that oil prices are headed back down, will carriers cut prices?

Don’t count on it, say analysts and Atlanta-based Delta Air Lines.

“For the full year, fuel prices remain very high,” Delta spokesman Eric Torbenson said. In the first quarter of this year, Delta said its fuel bill was $250 million higher than it was in the same quarter of 2011. Its average fuel price in the quarter was $3.11 per gallon, up from $2.86 a year earlier.

Average domestic fares in the final quarter of 2011 were 10 percent higher than a year earlier, according to federal data.

Fares are expected to “remain high despite a significant decline in jet fuel costs,” Dahlman Rose and Co. analyst Helane Becker wrote in a note to investors last week.

Meantime, some airline stocks rose as oil prices declined, reflecting the financial benefits for carriers when fuel costs fall. Delta shares hit a 52-week high last Thursday before declining again.

A longer-term decline in fuel costs could generate some fare relief for fliers, another industry watcher said.

“I think the declines that we’ve seen won’t have a tremendous impact,” said Ernie Arvai, a partner with aviation consultancy AirInsight. But if the declines continue, “we’ll see some impact on fares, probably in the next couple of months. . It goes up real fast and it comes down real slow.”

In that case, fliers might see declines in international fuel surcharges and of actual base fares on routes with heavy competition, Arvai said.

Delta is forging ahead with other efforts to mitigate the effects of fuel costs, including its highly unusual move to buy an oil refinery in a deal announced in April. Through a subsidiary called Monroe Energy LLC, Delta is investing $250 million investment to buy a refinery in Trainer, Pa., and $100 million to convert it to produce more jet fuel.

Delta said when it announced the refinery deal that it aims to gain some advantage over the high cost of refining crude oil into jet fuel.

“We think that jet fuel prices are going to continue to rise over time,” Delta President Ed Bastian said during a presentation at an investor conference two weeks ago.

 

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