Do airlines pass the fuel savings to customers or do they increase revenue?

[exekcabincrew]

Hi everyone!

A question on profitability here.. I am doing a stock pitch on airlines and this came up.

What happens to the revenue of the airlines when the price of fuel goes down?

The answer seems rhetoric, but I just read in Ryanair's filing that when the fuel price went down, they decided to pass the savings to the customers in the form of lower fares.

However most reports on aviation industry say that the profits of airlines have been up mostly due to low fuel prices (so they didn't lower the fares, they just kept the difference for themselves). So.. What is the rationale here? Is Ryanair using the fuel to gain market share?

Do you know what is the rationale behind this sort of decisions? Why should an airline not take extra profits from low fuel?.. Is there a fight for market share in the European market? There is one in the Asian market, but European airlines are clearly focused on profitability, so why this move?

Do I make myself clear? Maybe my rationale is somehow wrong?

Your input would be much appreciated!

Thank you

[AerRyan]

Bit of both, keep in mind Ryanair doesn't always do what it says it does.

Generally fares will drop a little, especially where there is competition. Profits will increase,
1). Because of increased passengers using the service (lower fares = more passengers)

2). Because they didn't pass on all savings to the consumer.

[tescoapp]

It can get a bit confusing because most airlines hedge their fuel.

So actually the fuel price dropping might actually cause a huge technical red mark in the balance book if they have screwed the hedging up.

The job of commercial is to maximise profit so they will charge the highest yielding ticket price mix they can for a route. If they don't have to reduce prices they won't and take the extra.

[Piltdown Man]

Revenue, profit, cash flow, reduced losses or operating costs? Logic would indicate that if fuel prices went down then airlines would have reduced costs. But that is not always the case. The first question is are we talking about spot, wholesale or non-contract delivered prices? The headline price is often spot price quoted by the media. But the reality is airlines work on a combination of contract prices negotiated station by supplier and station and these are often set months in advance. A sudden change in oil price therefore rarely has any immediate effect on an airline's costs. Long term changes will affect an airline's fuel costs and how this change in costs is reflected in ticket prices varies. Unfortunately, the only way to check how an airline deals with these changes is to monitor the real price paid to travel. The first thing is to ignore anything said by gobby airline executives - it's bluster and bravado. Also, most LoCo's actual price is so opaque that it is difficult to monitor. So the only real way is to work your way through annual reports and do some maths.

[Harry Wayfarers]

My local airline, Cebu Pacific Air, made a big thing of scrapping their extortionate fuel surcharges but immediately the price of flights went up, I booked a couple of flights only yesterday and they are still more expensive than they were in the good ol' days of fuel surcharges.

[rouelan]

Originally Posted by tescoapp

If they don't have to reduce prices they won't and take the extra.

I fully agree. But what happens on the long run is that airlines put more capacity when fuel cost goes down (typical example of Ryanair grounding fewer aircraft in winter), meaning increased competition and lower fares. So, in the end, savings tend to be passed to the customer but with some delay