Business

Jet fuel prices plummet, yet air fares keep rising

FILE - In this July 17, 2013 file photo, a United Airlines jet approaching Los Angeles International Airport passes in front of a Waxing Gibbous moon. Airfare is up 10.7 percent in 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. ( AP Photo/Nick Ut, File)
AP File
Airfare is up 10.7 percent in the past five years, after adjusting for inflation, according to an analysis.

NEW YORK — US airlines are saving tens of millions of dollars every week because of lower prices for jet fuel, their largest expense. So why don’t they share some of the savings with passengers?

Simply put: Airlines have no compelling reason to offer any breaks. Planes are full. Investors want a payout. And new planes are on order.

In fact, fares are going higher. And those bag fees that airlines instituted in 2008 when fuel prices spiked aren’t going away, either.

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In the 12 months ended in September, US airlines saved $1.6 billion on jet fuel. That helped them post a 5.7 percent profit margin in the first three quarters of this year, robust for the industry but lagging the 10 percent average for the Standard & Poor’s 500.

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In the past six years, airlines have done a great job of adjusting the number of flights to fall just short of demand. As a result, those who want to fly will pay a premium to do so. Airlines are selling a record 85.1 percent of their domestic seats. Thanks to several mega-mergers, four big airlines control the vast majority of flights, leaving very little room for another airline to undercut fares.

With that in mind, here’s a closer look at what’s going on with air fares and the price of jet fuel:

 The average domestic airline ticket during the 12-month period ended in September rose 3.5 percent to $372.21, according to an Associated Press analysis of data from the Airlines Reporting Corp., which processes ticket transactions for airlines and travel agencies. That figure doesn’t include another $56 in taxes and fees that passengers pay.

 In the 12-month period, US airlines burned through nearly 16.2 billion gallons of jet fuel. They paid an average of $2.97 a gallon — down from $3.07 the previous year, according to the Bureau of Transportation Statistics. That 10-cent drop saved the industry $1.6 billion. Fuel prices have since fallen further.

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United Airlines estimates it will pay $2.76 to $2.81 a gallon during the last three months of the year. Put another way: US airlines burn through 311 million gallons of fuel in a week. Lower fuel prices are saving them $31 million a week.

Granted, with 753 million passengers carried last year that averages out to a savings of $2.15 for each leg of a trip a passenger takes: $4.30 on a round-trip nonstop ticket or $8.60 on a round-trip connecting itinerary.

 Fuel accounts for 34 percent of an airline’s operating costs. The nonfuel costs include salaries and benefits, lease payments on airplanes, maintenance, and fees for landing at airports. That doesn’t include the cost of reservation systems, marketing, or food and drinks.

 Airlines are also reinvesting in their planes, airport terminals, and computers.

In the first nine months of this year, US carriers spent $10.2 billion on capital improvements, according to the industry’s trade and lobbying group, Airlines for America. That’s more than $1 billion a month, the highest pace since the 9/11 terrorist attacks.

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 Airlines are on the largest jet-buying spree in the history of aviation, ordering more than 10,000 planes with manufacturers Airbus and Boeing in the past five years. Those orders are for new, fuel-efficient planes. A temporary drop in oil prices shouldn’t slow that process. New jets last 15 to 20 years, and the buying is driven in large part by cheap credit.

 Money is also going back to investors. American Airlines this year paid its first dividend in 34 years, while Delta Air Lines restored its payout last year. Southwest Airlines, which has paid one for more than 37 years, boosted its payout by 50 percent this spring.