So when do drops in fuel prices get passed on to consumers? In particular, when does it cost less to book a flight?
A recent report on National Public Radio featuring Goizueta Business School faculty member Tom Smith sheds some light on the issue of surcharges, which rarely go away when the price of materials — in this case oil — drop.
“The drop in the cost of oil is a huge factor in the airline industry, where 30 percent of all expenses are for fuel,” writes Susanna Capelouto for NPR. “But airlines, along with other industries with large fuel expenses, have been slow to respond with lower prices.”
The volatility in fuel prices (see above) means additional fees are likely sticking around.
“When prices go down, you still want to hedge against the possibility that going forward, they might go up again,” Smith told NPR. “It’s a lot harder to drop prices than it is to increase them.”
About Tom Smith
Thomas Smith joined the Goizueta Business School faculty in 2008. He has held faculty positions at the University of Illinois–Chicago, National-Louis University, Loyola University, and North Central College. Smith received a PhD in labor and demography/cultural economics and policy from the University of Illinois at Chicago in 1998. He holds a BA from Illinois Wesleyan University. He has presented dozens of papers at academic and professional conferences in the U.S. and abroad. He has served as a consultant for the arts, music and entertainment industry (National Endowment for the Arts, Joffrey Ballet of Chicago) and in curriculum development (University of Illinois-Chicago, Buck Institute for Education).