Crude closed under $40 dollars yesterday. I will admit it here first, I never thought we’d see $30 dollar oil again. I knew oil would come down from the stratospheric levels of this summer, but I never envisioned what has happened. While it is easy to cheer the “pay raise” we’ve all received from this decline, I have to wonder what the long-term consequences of such a decline will be? Energy projects are being shelved left and right in response to the fall in oil prices. I hate to say it, but this short-sighted thinking will not serve us well in the long run. Eventually, the economy will recover, and so will demand for energy in all forms. Will we be ready? I hope so.
What’s this got to do with travel? Just about everything. Every annoying surcharge invented by the airlines in the last year has been directly attributed to $100+ dollar a barrel oil. When a lot of smart people were saying things that made $145 dollars a barrel seem cheap, airlines started hedging at “high” prices. Then, prices collapsed and airlines got caught with their hedging pants down. Long story short, airlines are stuck paying above market prices for some of their fuel needs and have to front the cash to cover their losses. Granted, most airline CEO’s have indicated that they are still better off overall even with hedging related losses, they are not realizing the full benefit of the reduction in oil prices. Don’t expect very many changes for the better in the way of reduced fees and surcharges anytime soon. I don’t think “unbundling” has cost the airlines any customers, and until it does, these fees are here to stay no matter what a barrel of oil costs.
Now for the $64 billion dollar question, will airlines be smart enough (or financially viable enough) to take advantage of what I believe is a temporary reduction in the price of oil? Time will tell.