Rising cost of fuel increases the price of airline tickets

“All of the resorts are dealing with this”

Immediately after celebrating the success of acquiring new airline service and flight destinations for the upcoming winter, local transportation officials were confronted with a new challenge—how to deal with a sizeable jump in ticket prices over last year, related to fuel costs and industry wide airline changes.

And the Gunnison/Crested Butte Regional Airport isn’t the only high-priced destination. Officials say pricing jumps are being felt in many other resort communities, and resort and airline officials across Colorado are arranging a collaborative meeting in an effort to bring stability back to airline pricing.
Last week the Gunnison Valley Rural Transportation Authority (RTA) and Crested Butte Mountain Resort (CBMR) announced that a new winter airline schedule had been finalized, complete with a new service provider and several new destination cities.
During a meeting of the RTA on Friday, June 13 CBMR vice president and chief marketing officer Ken Stone informed the board that most fares into Gunnison were approximately $800. “It’s extremely frustrating to have these flights loaded [in the airlines’ computer system], but our fare system is so out of whack it’s hard to sell anything,” Stone said.
On Tuesday, June 17 the cheapest round-trip, direct flight in February from Atlanta to Gunnison on Delta airlines was approximately $708, including tax, according to the airline’s website.
According to RTA airline consultant Kent Myers, prices are increasing 25 percent to 30 percent over last year’s fares, and that’s not just for Gunnison connections.
Stone had heard from other resort officials in Colorado who were facing similar hurdles. “All the resorts are dealing with this,” he said.
In fact, Myers said some resorts were facing round-trip fares of $1,200 to $1,400 for the cheapest service. “Gunnison is in better shape than most other resorts,” he said.
Myers described the airline industry as being in “survival mode.”
There are a whole host of factors contributing to the price jump. By far the most predominate is the escalating price of fuel.
“In American Airlines’ case, for every penny of increase in jet fuel over a period of a year, that increase is going to cost them $33 million extra,” Myers said after the meeting. “Between last year and this year the price of jet fuel rose $1.24. That’s $4 billion of extra cost. They’re only a $10 billion company.”
CBMR director of central reservations and revenue management Jeff Moffett says fuel prices are “forcing some companies out of business and others to mothball fuel-inefficient planes.”
The result, Myers says, is a large reduction in service to hundreds of airports across America.
Myers says to cover the cost of fuel, “They’ve got to raise the price. One way of doing that is eliminating available seats. That just works on simple supply and demand. It’s a commodity. The less of it there is, the higher the price.”
That has led to company mergers, and new ways of charging for air service, such as baggage and fuel fees. Myers says the new fees aren’t meant to make a profit, but are simply a way to maintain service without charging too much for a fare. Myers says the public is actually saving money using the fee system because extra fees, as opposed to the purchase price of a fare, are not taxed.
The fact the Gunnison airport was able to increase airline service over 15 percent this year is a good sign, Myers says, because it means that airlines believe resort communities can be profitable. Airlines are also finding success in the top 25th percentile of the most populated U.S. cities, he says, but “There’s a big squeeze in mid-size communities.”
Another problem is related to the competitive structure of the airline industry. Moffett says even accounting for fuel price increases, it’s tough to compare apples to apples on ticket prices because many airlines have had artificially low fares over the past five years. “There was so much competition. A lot of consumers were really getting deals,” he says.
Finally, Stone says ticket prices are usually more expensive when flights are first offered.
Moffett says that certain airline departments deal with scheduling and capacity issues in order to offer flights in accordance with individual service contracts, but they typically use a default formula to set the initial cost. Then finance teams set appropriate ticket pricing for each fare class, whether it’s wholesale pricing, business, promotions or general public first-class and cabin fares. The latter, he says, “kind of goes on a list of things to do… They haven’t had a chance to study specific supply and demand data for a new market.”
Group fares and wholesale tickets, Moffett says, look pretty normal.
However, Moffett says, the fear of local transportation officials is that what may have been set as a default initial public fare could eventually become a new benchmark, as airlines attempt to estimate future fuel costs.
But, considering all of the factors causing prices to jump, will such high prices affect tourist travel? Myers believes many people will still fly.
“We won’t know the end of the cost of fuel. In eight months it could be $80 a barrel, or it could be $200 a barrel. Some people will be willing to pay for that (expensive) ticket,” Myers says. “That’s just to break even for the airlines. That’s the reality of it. Does that mean people aren’t going to travel? I don’t think that’s the case… This is on a level playing field. No resort in Colorado is going to have an advantage over the other. I think the majority of people will come.”
Stone says a handful of resort officials across the state may be meeting in the coming weeks with airline representatives to discuss the situation. Stone hopes the meeting will be a chance to find a common ground concerning airfare pricing for resort communities. “We certainly have to be careful there’s no price collusion. It’s just to express our joint concern,” he says.
Stone believes public fares will begin to drop and settle out over the next two or three weeks.