Cheaper fuel doesn’t mean cheaper Canadian airfares this holiday

WATCH: When oil plummets, it’s not just gas that gets cheaper. The cost of jet fuel is down 30 per cent from what it cost six months ago. But passengers aren’t seeing a drop in ticket prices just yet. Jennifer Tryon reports.

The spirit of giving can only go so far, it seems, and it doesn’t extend to Canadian skies this season.

Heartwarming videos and commercials aside, the country’s big airlines are being tight-fisted on airfare prices despite a sizable drop in their own costs.

A 30 per cent-plus plunge in oil this fall has corresponded with a similarly large drop in jet fuel costs for Air Canada and WestJet. That’s led to some speculation that airfares could feel some downward pressure, especially if competition for holiday travellers heats up.

MORE:  Airlines bank on holiday ‘sadvertising’ to tug heartstrings 

So far, that hasn’t been the case.

Canada’s two biggest carriers are “holding the line on pricing,” RBC Capital Markets analysts said in a new research note.

“With lower fuel expense, the opportunity to give some of the benefits back to consumers is present,” the analysts said. “However, we have so far seen no evidence of this.”

Jet fuel is the single biggest expense for an airline, a cost that can burn up to a third of an airline’s operating budget. Any change in price can have a substantial impact on a carrier’s finances.

Whether customers will see any pass-through savings at all this holiday isn’t clear. “Air Canada aims to be price competitive in all markets but beyond that we cannot speculate about future changes to fares or fees,” Peter Fitzpatrick, a spokesperson from Air Canada said.

WestJet said there’s been a lag between the fall in oil prices and declines in its fuel costs. “It takes time to realize any savings,” spokesperson Robert Palmer said.

Traffic up

Then again, there’s not much reason to lower fares – competitive pressures haven’t grown overly intense while Canadian fliers appear quite comfortable with the current price environment.

Traffic growth at Air Canada is up 8.7 per cent compared to last year (capacity, or number of seats added, is up 6.9 per cent). Traffic at WestJet is up 8 per cent for the year, also outpacing capacity additions, according to stats released by each carrier last week.

WestJet airfares up

Despite talk of lower airfares from WestJet of late airfares are drifting higher, RBC said. Calgary-based WestJet said last month it was looking at lowering some airfares – in part to help economy-class fliers digest a new $25 baggage fee.

“While WestJet management noted on a conference call that low fares would be a focus” the carrier is posting “robust core fare growth,” the analyst note said. According to RBC, which tracks prices using its own proprietary tool, airfares are up 2.2 per cent versus a year ago. Air Canada’s prices meanwhile are flat.

MORE: WestJet to offer lower airfares for some economy fliers 

Currency offset

Oil’s drop has also hit the Canadian dollar, which is biting into some of the financial gains of cheaper fuel, Air Canada said.

“Fuel is purchased in US dollars, which has had an unfavourable impact due to the recent relative decline in the Canadian dollar,” Fitzpatrick said.

But the currency’s slide has “only modestly offset” the positives brought by cheaper fuel, according to RBC.

“The net impact of lower jet fuel prices has been significantly positive for Canadian airlines,” the analyst note said.

WATCH: Air Canada is sending some ex-pats home to spend the holidays with their families in Canada on the carrier’s dime.