Low cost carriers rely on pricing their flights as cheaply as possible to attract customers. With the cost of jet fuel starting to rise again, how will they react?
2016 saw jet fuel prices plummet to a 6 year low, aided by the fall of the cost of crude oil. This was seen as a boon by many airlines, particularly the low cost carriers. In March 2016 Scoot, a Singapore low cost airline, announced that is was scrapping fuel surcharges on flight tickets.
All Good Things Must End
Following the drop, the cost of fuel is steadily increasing. Scoot announced it is increasing its fares in September in reaction to the prices. Jet fuel currently costs around $90 per barrel. This is up 225% from when Scoot originally announced scrapping the surcharge. Scoot’s fares will increase between SGD$5 (£2.82) and SGD$30 (£16.95). It appears Ryanair may be quietly following suit. At the start of July, one way flights between Stansted and Frankfurt Hahn were available for just £6.99. Now the cheapest fare available on this route is £9.99.
According to the US Energy Information Administration, fuel prices have increased by 138% between January 2017 and June 2018. It is expected that fuel prices will continue to rise in the immediate future.
Unless the cost of fuel massively rises, it is unlikely that there will be a huge increase in ticket prices. Overall fuel is about 32% of an airline’s operating costs. Whilst you may think that an airline is making a loss by selling super cheap tickets, this is actually not the case. Take Ryanair’s £9.99 fare between London Stansted and Frankfurt Hahn for example. Yes, if the passenger only pays for the flight, the airline is making a loss. Each passenger flying from the UK costs the airline £13 in air passenger duty. They offset this loss in a couple of ways.
To start, with Ryanair you are able to buy priority boarding and a reserved seat. Ryanair’s extra legroom seats start at £15. Add priority boarding which costs from £6, and you’re at £21. These two services are provided at no extra cost to Ryanair, meaning the whole amount goes straight towards the fare. Our London to Frankfurt Hahn flight now costs £31.
You may also have noticed that food and drink on board is prohibitively expensive. The airline knows that if you’re thirsty two hours into the flight, you haven’t got the option to stop at a service station and buy a bottle of water. As they are your only choice, they also put some of this profit towards your fare.
Finally, the airline knows that people need to travel at short notice for meetings, funerals, and more. With this in mind, they hike up the prices even more. Flights from Stansted to Hahn are sold out until Friday 10th at the time of writing. On the 10th August, 4 days from now, our £9.99 flight is listed for £106.07 offsetting some of the cheaper tickets sold,
Whilst it may be alarming that fuel prices are continuing to rise, it is unlikely that the lowest cost flights will become much more expensive than they are now.