Why are airline fares set to rise, despite oil prices dropping?

In a recent a report carried out by the Associated Press, new light was shed on the American aviation industry. It has been revealed that from September 2013, to September 2014, U.S. airlines used nearly 16.3 billion gallons of fuel, paying an average of $2. 97 a gallon, which was down $3.07 from the previous year. This would have been a ten per cent drop, saving the industry around $1.6 billion. And this is set to decrease even further, with United Airlines estimating that it will pay around $2.76, a gallon during the last three months of the year.

However, airlines fares keep rising. So, why haven’t the mass savings trickled down to those paying the fares – In theory U.S. airlines are currently saving $31 million a week , but this has yet to be reflected in what passengers are paying. The main reason appears to be that there is no necessity to do decrease ticket prices because the demand remains high. Planes remain full to capacity, and this mean that new planes are being put on order. In fact, airlines are not only investing in their planes but also their airport terminal, and IT.  Airlines For America, the industry’s trade and lobbying group revealed that U.S. carriers spent $10.2 billion on capital improvements in the first nine months of this year.

Whilst airlines might be saving money on oil, it is key to remember that they are also trying to expand due to an increasing demand in passenger volume. Japan Times referred to it as ‘the largest-jet buying spree in the history of aviation, ordering more than 10, 000 new planes with manufacturers Airbus and Boeing in the past five years.’