The price of oil just dropped below $40.00 a barrel yet air fares are still relatively high? What's the deal?

Airlines are reporting lower passenger loads. When will we see the huge drop in fuel prices reflected in lower air fares? I know the airlines have dropped capacity, added fees for just about anything, but it would seem that eventually they will have to drop prices to fill up their planes.The price of oil just dropped below $40.00 a barrel yet air fares are still relatively high? What's the deal?
There is a lower passenger load due to businesses cutting travel expenses and people taking fewer vacations. They probably have estimated that dropping prices won't generate enough revenue to justify it.The price of oil just dropped below $40.00 a barrel yet air fares are still relatively high? What's the deal?
Airlines hedge their fuel prices. This means that an airline signs a contract with a fuel provider for a set number of years that guarantees a set amount of fuel for a set price. This is a bet between the supplier and the airline. If oil prices go up, the airline wins since they are paying less than everyone else. If prices go down, like they have, the fuel supplier wins since they are selling the fuel for more than it is presently worth.





Hedging also allows airlines to keep consistant prices and not feel radical swings in prices.





Also, I everyone is used to paying the higher prices, why drop them and lose your profit margin.

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