Air Fares Unlikely To Fall Alongside Oil Prices, Experts Say

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DUBLIN (Reuters) – Airlines are unlikely to cut fares following the dramatic fall in oil prices, aviation experts said on Tuesday, despite calls from politicians and consumer groups to pass on the savings to passengers.

The global airline industry is expected to report a near $5 billion increase in profits this year to $25 billion, benefiting from cheaper fuel after crude oil prices slumped 60 percent since June last year.

Executives and analysts at the Airline Economics conference in Dublin said carriers would keep prices high as long as there was sufficient demand, except when paring back fuel surcharges on long flights.

“Ticket prices are market-driven not cost-driven,” said Peter Davies, former chief executive of Air Malta, adding that lowering fares was not necessarily the correct response to lower oil prices.

Ted Christie, chief financial officer at low-cost carrier Spirit Airlines , said airlines had “very expensive systems and people thinking about how to maximize revenue, and they should do that regardless of the oil price.”

Politicians and consumer groups in the United States and Europe have called on airlines to cut fares. New York Senator Chuck Schumer called for a federal investigation into why lower fuel costs were not being passed on to passengers last month.

And on Jan. 7, as North Sea oil prices hit a five-year low of $53 a barrel, British Finance Minister George Osborne tweeted: “Vital this is passed on to families at petrol pumps, through utility bills and air fares”.

In the past, airlines have often used cheaper oil to increase their capacity in a bid to win market share, putting pressure on prices, but for now industry watchers say they are showing discipline.

Global airlines body IATA expects air fares will fall 5.1 percent this year, after drops of 3 percent in 2014 and 6.2 percent in 2013.

That is not enough for consumer groups, who say airlines are quick to hike prices when fuel costs rise but are not so quick to reduce them.

“In the United States, we consumers are seeing dramatically diving gas prices at our gas pumps and at the same time, facing less room and more fees, stubborn fuel surcharges and air fares,” Charlie Leocha, chairman of Travelers United, said.

But Helane Becker, analyst at Cowen Securities, said airlines would use their savings to improve cabins or pay down debt, rather than lower prices.

“Why should airlines cut ticket prices if demand is strong?” she said.

(Reporting by Victoria Bryan, Tim Hepher and Conor Humphries; Editing by Sam Wilkin)