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The price of 1 barrel crude oil has significantly reduced

Airplane Travelling Over the Years

As the world has become a global village and the modern advancements in technology has minimized the distances which once seemed impossible to cross, all of us has become travellers. Airplane travelling is the most sought after travelling when it comes to flying from one country to the other because it is by far the fastest way of travelling. But don’t take us wrong here; it is by no means the cheapest or even relatively cheap way when compared to other modes of travelling. From booking tickets to getting pillows on airplane, water, snacks or even a small packet of chips, it will cost you quite a lot. Perks of travelling by air, right?

Change in Crude Oil Prices

When the crude oil prices touched down their lowest in the last 12 years by going from a $100 barrel to $30 barrel, world witnessed a number of changes. The car fuel price went pretty low and so did the buses fair, the economy of oil-dependent countries suffered aggressively but the extreme low oil price made people pretty happy except for the ones who travel by air. The airplane companies, in apropos to our expectations, did not cut down their ticket prices rather kept them stagnant.

When the oil prices were high, it was easy to digest the fact that one has to pay pretty large a sum of money to travel but now that the crude oil prices have decreased pretty shockingly, why we can’t still benefit from this fact?  When crude oil used to be expensive, that was precisely the time when airplane companies started to add fuel surcharges to the cost of tickets. The prices were mild in the start but as the oil prices increased so did the fuel surcharges. But now that the fuel prices have decreased, we haven’t been seeing any change in the fuel surcharges.

Factors behind No Change in Airline Fares

The cost of jet fuel, for instance, has fallen down, worldwide, a whopping 43 percent on average from the price just a year ago. According to a few analysts, the reason behind the stable tickets of airplanes is because the airline industry is not a hypercompetitive industry anymore, nor is it crowded like it was just a decade back. Unlike 10 years ago, there are not a lot of airplane companies, the few remaining companies because of less competition are open to charge anything they want and make as much of profit as they want. Even in big countries like U.S, only for large airlines are working at the moment (Delta, Southwest, American/ US Airways, United). They control more than 70 percent of the domestic market and therefore have quite a room for charging people the price they want to.

Another reason why airline fares have not gone through any change is because the airline industry depends upon supply and demand. The demand of airline industry is only increasing by every passing day but the supply has not been increasing in the same way which gives competitive edge to prevalent and popular airline companies to fix the airfare as they like.

Airplane companies have to take fuel in advance and many airline companies have made this statement as their argument of not reducing their ticket prices. According to the administration, they can most certainly not pass on the saving because of the hedged deals.  Jeff Klee who is the chief executive of CheapAir.com, an online travel agency, explicitly mentioned that airlines do not price the flights based on the oil prices rather the prices are based on demand. The more the demand, the more the airplane fares become.  The International Air Transport Association, main trade body for world-wide airlines, has issued a statement in this regard, “While it’s true jet fuel prices have fallen, several factors limit the ability of airlines and consumers to benefit”.

As the summer season is just around the corner, it is impossible for airline companies to now cut down their fairs even a bit as the demand increases manifold in summers. According to the estimates of The International Air Transport Association, airline companies are generating the strongest profit margins since the mid 60’s all because of the low crude oil prices.

One more factor which needs to be considered is: Airline companies which hedge are already locked in. Because of the crude oil price trend in the past few years, many airlines started hedging in which they locked the prices of crude oil for the upcoming years. The hedging instead of helping them actually turned out to be disadvantageous as because of the prior deal, the airline companies still cannot get oil at lower, market price value.

These were a few of the factors which play a large role in not cutting off the airline fares.

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