Oil is plumbing fresh multi-year lows Monday, slipping below $47 a barrel. The dive has spelled a huge relief for Canadian commuters and motorists, who could keep as much $20 billion in their collective pockets this year to spend elsewhere, or save.
Canadian air travellers haven’t enjoyed the same drop in costs. Despite the dramatic 55 per cent plunge in oil prices — a decline that’s reduced the single biggest expense at Air Canada and WestJet, jet fuel — experts who track the industry say airfares haven’t budged.
Canadian airlines are “holding the line on pricing,” investment experts at RBC Capital Markets said in a research report last month. The RBC analysts’ fare tracking tool was “showing no evidence” of lower prices.
Pressure builds
Globally, carriers are poised to report record profits this year amid oil’s surprise plunge as the margin between airlines’ costs and their prices widens with jet fuel’s decline. But government pressure is building for more savings to be passed onto customers.
“We have seen recent evidence that the airline industry could be ‘forced’ by law to pass the benefits of lower oil prices on to consumers,” transportation analysts at Raymond James said in a report last week.
In the United States, Democratic Senator Charles Shumer is calling on the departments of Transportation and Justice to investigate airfares among U.S. carriers.
In the United Kingdom, the Treasury “is intensifying a push to ensure the drop in oil prices benefits customers” of airlines and utility companies, according to a Bloomberg News report.
In Canada, there’s no such immediate pressure. Federal Transport Minister Lisa Raitt said last month her department won’t intervene in the market.
“They are private companies,” Raitt said of Air Canada and WestJet, the country’s two principal airlines. “They get to charge what they need to charge in a market condition. They are in a competitive environment with other airlines.”
Raitt noted, however, a federal review of the Canadian Transportation Act is currently underway, part of which is examining the structure of airline fees.
MORE: Will pro-consumer Cons target airlines next? ‘Why not’
‘Takes time’
For their part, Air Canada and WestJet have put forth some explanations why fares haven’t noticeably fallen.
“I would note that fuel is purchased in U.S. dollars, which has had an unfavourable impact due to the recent relative decline in the Canadian dollar,” Air Canada spokesperson Peter Fitzpatrick recently told Global News.
Airlines often secure a percentage of their fuel needs at a fixed cost months in advance, as well, a hedge that provides some cost certainty. “It takes time to realize any savings,” said Robert Palmer, a spokesperson for WestJet.
The decline in jet fuel costs comes months after Air Canada and WestJet imposed new baggage fees on economy class fliers. The new fees are expected to generate tens of millions in additional revenue for the carriers, who experts say are following examples set by U.S. airlines in tacking on “ancillary” fees to base fares in recent years.
MORE: Here’s what Canadian airlines plan to charge new fees on next
Charlie Leocha, chairman of consumer advocacy group Travelers United, told U.S. newspaper The Hill last week a better explanation is required from U.S. carriers.
jamie.sturgeon@globalnews.ca
Follow @jasturgeon
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.
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