Airfares Drop Due to Plunge in Oil Prices, But Rising Fees Negate Savings
The GBTA Foundation released its quarterly U.S. business travel forecast last week. It included a projection that average airfares have dropped to $379 this year, down from $392. This is a long anticipated drop for consumers due to the collapse in global oil prices.
I talked about this phenomenon with Fortune’s Chris Elliott who wrote that while airfares are falling, it may not feel that way. This is because at the same time we are seeing airfares fall, we are seeing record revenue for airlines from ancillary fees – hitting more than $6.5 billion in 2014, and that is just for baggage fees and reservation change/cancellation fees.
The average business traveler and their travel buyer are likely noticing a continuation of expanding fees for various ancillary services from early boarding privileges and extra legroom to WiFi and on-board food. They may also see hikes in fees they are used to like baggage and change fees.
Profitable airlines are no doubt a good thing for our industry, especially when airlines reinvest that money not just to benefit their shareholders, but to benefit the consumer experience. Still, any time expenses for business travelers go up, it puts pressure on companies who are trying to stretch their travel dollars as far as possible. Looking long term, any increase in the cost of doing business, such as business travel, will lead to increases in prices for the goods and services these companies produce. This presents a challenge for everyone and will certainly be something to keep an eye on.