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If fuel is so cheap, why aren’t airfares?

Plunging fuel costs likely will not bring cheaper airfares and an end to dreaded fees, say airline industry analysts.

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    The Delta Airlines Charter carrying the University of Notre Dame Fighting Irish NCAA college football team, Jan. 19, 2016. Delta Airlines has seen profit margins nearly double because of falling gas prices.
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After a decade of steep financial losses that airlines attributed to rising fuel costs and a decline in demand after the terrorist attacks of 2001 and the recession of 2008, the airlines are once again profitable. Perhaps more profitable than ever.

Airlines collectively are expected to report $33 billion in net profits in 2015, up from $17.4 billion in 2014, nearly a 90 percent increase. As the USA Today points out, these represent the highest profits by far since at least 1990.

While airlines are saving billions on fuel, given that oil prices have declined by more than half since 2014, and more people are flying, presumably because they are saving money at the gas pump, flying will likely not get any cheaper, say airline analysts.

Recommended: Gas prices: 5 reasons they rise and fall

Nor will the airlines lower the myriad fees, such as baggage and reservation-change fees, that were introduced over the last decade to make up for their lost revenues.

"If someone is looking at these profits and thinking 'Does that mean bag fees will go away?' The answer is not only no, but very much no," Henry Harteveldt, travel industry analyst for San Francisco-based Atmosphere Research Group, told the Los Angeles Times.

Instead of reducing fares and fees, airlines will likely spend the extra money to pay down their debts, reward shareholders by buying back company stock and thereby raising the value of the remaining stock, give raises to employees, and to upgrade planes and amenities. There’s even talk of free snacks for economy flyers coming back on some airlines.

In their financially strained years the four airlines that control upwards of 80 percent of the US market reduced the number of flights to keep prices up, crammed in more seats, and started loading up planes with passengers at near capacity.

Until 2000, planes flew with about 50 to 65 percent of their seats full; today they fly at up to 86 percent of capacity, on average, as The Boston Globe has reported.

These forces, coupled with a 9 percent growth in flying demand last year, leaves little incentive for airlines to discount fares. There are no more empty seats to sell, and no need to sell them.

"Right now the airlines have a great balance of supply and demand, and they are using it to ratchet up fares," Jim Corridore, an airline analyst for S&P Capital IQ, told the Associated Press.

The cheapest domestic airfare rose by 1.5 percent in 2015 from the previous year, reports the Times. Airfares for all of 2015 are not yet available, but the average domestic fare for the first six months was $388, reported the Times, down less than 1 percent from the same period in 2014.

Not only are prices unlikely to decline, the AP reports, there’s even some talk in the airline industry that cheaper oil might actually raise airfares, as consumers who are saving money on gasoline and heating bills now are expected by airlines to have extra cash to spend on travel.

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