Despite Low Oil Prices, Airlines Foresee Tough Year Although oil prices have fallen from a high of about $140 a barrel to below $40 a barrel, airlines expect the faltering economy to contribute to a tough business environment. Passengers hoping for a break from the checked-baggage fee will have to wait a while longer.
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Despite Low Oil Prices, Airlines Foresee Tough Year

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Despite Low Oil Prices, Airlines Foresee Tough Year

Despite Low Oil Prices, Airlines Foresee Tough Year

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ROBERT SIEGEL, host:

Earlier this year, airlines were faced with oil costing more than $140 a barrel. To cope, many carriers started charging for checked bags and they cut back further on things like drinks and snacks. Well, oil prices have now dropped by nearly 100 bucks to around $44 a barrel. But the baggage fees remain and still no peanuts. So that means profits for the airlines, right? Well, maybe not as NPR's Jeff Brady reports.

JEFF BRADY: If airlines were hoping no one would notice that the underlying reason for those baggage fees has gone away, well, customers like Lupe Felix have noticed. Holding his toddler, he was standing near a ticket counter at the Denver Airport.

(Soundbite of airport)

Mr. LUPE FELIX: Oil prices and all that have gone down, gas prices. No, I don't think it's fair the airline should be continuing on with the extra charges that they've been imposing on people nowadays.

BRADY: Across the terminal, Alan Robins is sitting with his family. They were in Breckenridge for a skiing holiday, says after years of full service flying, the current nickel-and-diming is tough to get used to.

Mr. ALAN ROBINS: For example, we flew U.S. Air, and they charge you a dollar for a cup of coffee. Now a dollar for a cup of coffee is reasonable but the concept of being charged is not.

BRADY: Airline industry analyst Mike Boyd says this frustration is understandable given the changes over the last six months.

Mr. MIKE BOYD (Airline Industry Analyst): On the surface, things look good for the airline business. You know, oil prices are down to $40 or so, that means fuel prices are down from 140. And we thought up until about two weeks ago it was going to be a pretty good year because airlines have trimmed a lot of excess capacity.

BRADY: For you and me trimming excess capacity means fewer flights, smaller planes, and there's more likely to be someone wedged into that cramped middle seat. For airlines that means more profits, but then the recession prompted business and leisure travelers to cut back.

Mr. BOYD: Now demand is dropping like a piano off the 20th floor.

BRADY: And beyond that, Boyd says, airlines aren't getting the full benefit of those lower fuel prices. The industry thought the expensive oil was here to stay according to Steve Snyder with Denver-based Frontier Airlines.

Mr. STEVE SNYDER (Spokesman, Frontier Airlines): Most of us hedged at some point as oil was coming down because we all were concerned that, you know, it would run right back up again.

BRADY: That didn't happen and betting the wrong way on fuel-hedging contracts cost Frontier a few million dollars in November. Big airlines like Southwest, United, and Delta were hit even harder. But even with these costs, the lower fuel prices have been great news for airlines. Frontier, for example, posted a nearly $3 million net profit in November, not bad for a company that was forced into bankruptcy last spring. Most predict the small airline will emerge fairly strong sometime next year baggage fees fully intact. Frontier has addressed the fee issue a bit differently than other airlines. Spokesman Steve Snyder says customers buying a ticket choose from three options.

Mr. SNYDER: You can compare it to a happy meal or a full meal deal like you see in a lot of the fast food restaurants.

BRADY: There's a value meal for people who only travel with carry-on luggage. And if you want a checked bag, have a snack, or earn extra miles, you can choose a more expensive option. Airline analyst Mike Boyd says Frontier likely will be one of the survivors over the next year. For 2009, he predicts a 15 percent drop in passengers across the industry. Some analysts say discount carriers like Southwest are best prepared for that, but not Boyd, he says the discounters already are pretty lean. But the big familiar names have a lot more options when it comes to further cuts.

Mr. BOYD: You know, the carriers such as American and Delta and Continental, they can pull down and trim the capacity to keep up with that. It's the quote, "low-cost carriers," the big ones, they're the ones that are going to be the ones to watch.

BRADY: Meantime, just about every airline is hoarding cash while they still can, hoping that will get them through until the economy improves. Jeff Brady, NPR News, Denver.

SIEGEL: Coming up, in the wreckage of Madoff's alleged Ponzi scheme, can investors who lost loads of many get any of it back? That story is next on All Things Considered.

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