Will Lower Fuel Costs Lower Fares?
Good question, and so far, the answer is “NO!” There are all sorts of questions about this issue and they all lead to trying to figure out what is going to happen with the airlines. Many of us thought that when the fuel crisis eased a bit, we might be able to run off on a short, quick vacation because it would be affordable for a minute or two. Those of us who thought that were apparently wrong.
According to numerous statements by numerous airlines in answer to all the questions about what will happen to fares in the wake of fuel prices that are falling, the airlines cannot afford to lower fares.
Here’s how it theoretically works. David Castelveter spokesman for the Air Transport Association has explained that because the fuel prices were so high and kept the airline companies way over budget most of this year up until a few weeks ago, the airlines are still struggling to catch up because they are still in the hole.
Castelveter stated that “you don’t recover from multi-billion dollar increases in your fuel bill in a few weeks. The carriers are on line to lose $5 billion this year.” Part of the reason for this is that they were slow to react to rising fuel prices and once they did react, they acted slowly and cautiously trying to save money for customers in order to keep people traveling, and also hoping that fuel prices would level off or go back down sooner than they did.
There are still some good deals to be found, especially if you live in an area that is served by Southwest Airlines or other airlines that are known for their low cost flights. Overall, however, air fares have increased 20% to 40% depending upon the airport, where you are traveling and how far in advance you book a flight. In addition higher and more taxes and fees, and fees for baggage (how can you be expected to pay for your one and only suitcase?).
The airlines are simply trying to survive. They have cut down on the number of flights they offer so that they can save money flying half-empty planes by consolidating more passengers to fill up fewer flights.
The Air Transport Association and some of the airlines feel that once everything levels out, the fuel crisis eases and the economy becomes balanced, we can look for some gradual decreases in fares. Until then, all we can do is wait.
Could Fuel Costs Hurt the Country’s Roads?
The fact that the cost of fuel has skyrocketed has been a tremendous problem for consumers, making everything – especially travel – more expensive. It has become too expensive for many, and as a result, less people have been traveling this summer. In fact, in June, alone, travel dropped nearly 5% from last years amount of miles traveled, in what is usually a busy travel month with kids out of school.
We continue to hear about new and amazing effects of the fuel crisis, and the latest effect is the potentially negative effect on the roads themselves. How could less travel have a negative effect on the roads? In a not so obvious way.
The tax on fuel contributes to the nation’s highway fund. As consumers buy less fuel, there is less money from taxes to contribute to the Highway Trust Fund. Taxes on all types of fuel are contributed to this fund.
A major source of funding for infrastructure, repairs and other necessities on the roads and for the roads, is that very fund, and the less consumption of fuel actually will create more issues that could plague our nation’s roadways.
There have been calls for making repair and maintenance of the roads less dependent on fuel taxes. This is not necessarily a simple idea. There are many ideas swirling around including creating a Metropolitan Investment Fund to reward cities that improve traffic and deal with other issues related to congestion.
Other ideas include a National Infrastructure Bank that would work like the Federal Deposit Insurance Corporation (FDIC) and fund civic building projects for everything from bridges to sewers and more. The funding would come from bonds, and the agency would be nonpartisan.
This is a complicated issue that needs to be addressed. It is good that lawmakers are making a concerted effort to deal with the effects that the fuel crisis has created – even the ones that are not that obvious.
Could Lower Fuel Prices Cause Shortages?
Good news! The cost of fuel has dropped during the past two weeks, and it is predicted that this trend will continue, at least in the short term. This is great news for consumers, or is it?
Some economists are predicting that because of the drop in prices, there could end up being fuel shortages for short periods of time if the prices continue to fall. The way that this would happen is that fuel retailers would maintain lower amounts of fuel stock waiting for prices per barrel to continue falling, rather than buying at the current price and having to sell the fuel at lower prices at the pump when the current price per barrel continues to fall.
In the meantime, there is a second half of this bizarre situation, which makes some sense from a business point of view. The second half of the scenario is consumers.
As consumers see the prices fall, they will wait until the last minute to purchase fuel, and then fill up at the lowest price possible. If the price drops significantly, consumers will possibly be in a rush to purchase while prices are down, creating the need for more fuel. With fuel companies keeping their stock low and trying to buy in bulk at the lowest price possible so they can sell at a profit, and at the same time, consumers trying to purchase as much fuel as possible at the lowest current price, there could be a shortage created.
Economists feel that the shortages would be a day or two at a time and would not necessarily become a long-term situation, however, it could still lead to a lot of concern and possible chaos for both consumers and fuel retailers.
Even with the drop in prices, however, fuel will still remain expensive to purchase. In addition, economists advise that to avoid a shortage in your personal situation, it might be good to spend the extra 2 cents per gallon and fill up your tank, not waiting for rock bottom prices to see what happens.