Are you worried about airfare going up due to higher jet fuel prices? Folks, don’t worry about it… airfare is actually going to go down, and it’ll be cheaper than ever befores! Or at least that’s what we’re being told to believe.
Transportation Secretary spins high oil prices as a positive
Second generation Fox News host Peter Doocy interviewed Transportation Secretary and former Fox News colleague Sean Duffy about the current situation that’s impacting the airline industry, in light of the conflict with Iran, the closure of the Strait of Hormuz, etc.
As many may remember, just a few days ago, President Trump assured us that Iran had agreed to never close the Strait of Hormuz again. Never, ever, ever, ever again! That was seen as a huge sign of relief for the airline industry. The only problem is that two days later, Iran once again closed the Strait of Hormuz.
It’s obviously an incredibly challenging time for the airline industry, since airlines just can’t afford for jet fuel prices to double (or more). The airline industry is low margin and highly competitive, and they also don’t have the ability to raise fares that much, given that pricing for airfare is elastic, and higher fares send down demand.
So that brings us to Doocy’s interview with Duffy, where Duffy claimed that we’re seeing a “small spike” in jet fuel, but somehow when this conflict is over, jet fuel prices will be even less than they were before the conflict, and consumers will also be paying less for airfare:
Doocy: “So let’s start here. The strait is closed, the strait is open, the strait is closed again. Now there’s some bad news from Delta Air Lines, there’s this Bloomberg story, the quote is ‘we have to find ways to get that cost passed through to consumers,’ Delta CEO Ed Bastian said, ‘it won’t happen overnight.’ Secretary Duffy, that’s not good.”
Duffy: “So first off, a lot of the carriers are eating the cost increase of jet fuel right now, good side is we have great supply chains for jet fuel into the US, that’s not always the story in the rest of the world, because of Donald Trump’s energy dominance initiatives that he started over a year ago. But listen, we’re having a small spike in jet fuel. But if you look in the out years, we think once this conflict is over, we’re going to see jet fuel go lower than it was before the Iran conflict, so yes, a small disruption, hopefully for a short period of time, but in the long run, it becomes cheaper for Americans to travel because of decreased jet fuel prices.”
Would anyone like to take Sean Duffy’s side with these claims?
I agree with Duffy that airlines are having to absorb most, but not all, of the increased cost of jet fuel. That’s simply because airfare is driven by what consumers are willing to pay, rather than by the cost of operating a flight. That’s why airlines operate many flights at losses, because it’s all about generating incremental revenue, to cover very high fixed costs.
We are seeing airlines try to decrease capacity in order to drive up costs, and we’ve also seen airlines increase checked bag fees. But an actual widespread fare increase is challenging.
But here’s the more fundamental issue — unless things go back to normal very soon, the airline industry is in massive trouble. Airlines simply can’t make money with jet fuel prices where they are. The world’s most profitable airlines will be losing money (though have the luxury of sustaining those for a while), while the world’s other airlines may not be in business for very long. And suffice it to say that airlines going out of business, or even just shrinking a bit, will cause the cost of airfare to increase, given that supply will decrease.
While I think Duffy is completely gaslighting people by suggesting that this is just a “small spike” in jet fuel prices, it’s his long term claims that I find to be most dubious. He thinks once this conflict is over (if that happens any time soon — again, highly questionable), it’ll actually be cheaper for Americans to travel than before the conflict, because jet fuel prices will be lower than they were before?
Could he show his math on those claims, please, that things will be better than ever before? It’s funny, because he says airlines are eating the cost of the increase in jet fuel, but if jet fuel prices go down, he thinks airlines will just pass on all of those savings to consumers?
What will ultimately have the biggest negative impact on airfare is airlines going out of business due to the spike in jet fuel, given that less competition will lead to higher fares.
Either Duffy is lying, or he’s dumb. I don’t know which it is, but no matter how you slice it, his narrative just isn’t right.
Bottom line
I don’t envy the position Sean Duffy is in, having to positively spin a massive crisis that the airline industry can’t sustain for long. But hey, he sure managed to come up with quite the narrative. We’re currently seeing a “small spike” in jet fuel, and most airlines are “eating the cost increase of jet fuel.”
But worry not, “once this conflict is over, we’re going to see jet fuel go lower than it was before the Iran conflict,” and “in the long run, it becomes cheaper for Americans to travel because of decreased jet fuel prices.”
Make it make sense, please?