Why fuel price crash won't make flying cheaper
Australians are unlikely to reap the benefits of cheap fuel on their next flight, as airlines look to recoup costs in other areas.
Oil prices plunged towards a four-year low on Monday morning after the Organisation of the Petroleum Exporting Countries (OPEC) said it was going to raise output by 411,000 barrels per day in June to punish overproducing countries.
US President Donald Trump's tariff policies and their threat to global growth have only added to these pressures.
The price of Brent crude oil fell to a low of $US58 ($A90) before bouncing back to $US60 ($A93) a barrel over the trading day. The price of fuel has fallen since the start of the Trump administration. NewsWire / Luis Enrique Ascui Credit: News Corp Australia
Jet fuel prices across Asia and Oceania are also on the decline, with the International Air Transport Association reporting that it has fallen 14.6 per cent in the past year.
Despite the dramatic falls in oil prices and confirmation the price of fuel is the largest cost to an airline, it seems flight prices are unlikely to drop on the back of Monday's price fluctuations.
NewsWire understands at least one major airline uses hedging strategies of locking in the fuel price to stop major fluctuations in prices in the medium term.
The weak Australian dollar and other inflationary pressures – such as wages and parts -– are also understood to be factors in pricing decisions.
Consumer advocate Adam Glezer said one of the major costs to airlines was fuel, arguing the falls in commodity prices should be passed on to consumers.
'It should be flowing through straight away,' he told NewsWire.
'It is the equivalent of the Reserve Bank of Australia cutting interest rates and the major banks not passing it on.
'Obviously, that's frowned upon, so why is there not a big deal made when the airlines don't pass it on?' Australians travellers are unlikely to benefit from cheaper fuel. NewsWire / Jeremy Piper Credit: News Corp Australia
Mr Glezer claimed it was a money grab in a bid to increase an airline's profit margin without taking consumers into account.
'It is completely unfair to consumers. Airlines increase (prices of) flights by the cost of fuel but do not decrease it when it goes down.' he said.
'This is one of the many problems with a duopoly.
'Airlines in countries with increased competition wouldn't get away with this without losing significant market share.'
A Qantas spokesperson told NewsWire airlines faced more costs than just that of fuel.
'Average domestic fares have been rising less than the rate of inflation, while international fares have been coming down,' the spokesperson said.
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