Quote:
In a perfect world, that would work great. But as an industry, airline tickets have what economists call "price-demand inelasticity". Operating costs rise for all airlines as oil prices increase, yes. But historically, the airlines have not had the ability to raise their prices enough to make up for higher oil prices.Originally Posted by tpersuit
So by your reasoning... oil isn't an operating cost for every airline across the board and the airlines shouldn't raise ticket costs when their operating costs rise.
Two reasons:
1. As airlines try to raise their ticket prices, one or two of the airlines -- either legacy or LCC -- will hold out, and the ticket prices come back down
2. Consumers have become conditioned to low airfares, and as ticket prices rise, demand falls off faster than ticket prices rise, and the result is a net loss in revenue.
Now in the last few months, the airlines have shown some ability to raise ticket prices and make it stick. Maybe they've gotten smarter.
http://www.msnbc.msn.com/id/21677016/
Will the airlines be able to raise ticket prices enough to make up for the jump in oil prices? We'll see. Let's hope so. But it ain't automatic.