Trend Suggests Domestic Fares Set to Rise into 2020

Domestic Fares vs Fuel

I have long disagreed with the notion that fares follow fuel price, at least directly. Fares (price) are a function of supply (seats) and demand. As such, too much capacity in a market, and fares will drop. Not enough capacity in a market, and fares will rise. Yet, as pricing moves to bring equilibrium to supply and demand, there is theoretically a floor to how low a price can go: the cost of flying that seat. Is the U.S. domestic market *gasp* rational? Since fuel is such a large piece of the cost puzzle (~20-25% of total expenses), it stands to reason that fares should, in some way, be affected by the price of fuel in a rational market. A market which collectively allowed pricing power to increase as costs increased, yet competitively drove fares down as fuel prices dropped would be a strong sign of rationality. The word “rational” […]