Bargain Fares Are a Holiday Treat, But…

Posted by: Justin Bachman on December 18

Crude oil contracts for January slid below $36 a barrel Thursday in New York floor trading. This occurred the very same week that OPEC chopped production by 2.2 million daily barrels in a bid to find a floor for prices that are stunning the cartel’s member states. Worldwide, current oil supplies are absolutely trouncing demand – a nice little gift for the airlines this holiday season, right? But here’s a fantastic conjecture: I’d guess that most of them don’t even care about that too much right now.

The same pressures decimating oil prices, which are now down 75% since July, are also wreaking havoc for airlines. Ticket sales are drooping and revenues are likely to be tremendously squeezed through the first half of next year. The recession is alive and raging. “I would liken it to a 100-year flood and I think we’re all scrambling to make sure we’re on the higher ground,” Southwest Airlines (LUV) CEO Gary Kelly said Dec. 17 in a speech at the Wings Club in Manhattan. He says passenger traffic “is basically at 1998 levels.” (Mind you, this is the view of the leader of the airline that flies the most people domestically.) Kelly told reporters after his talk that he expects “a massive amount of restructuring” ahead given the challenged balance sheets and paltry revenue outlooks.

Of course, the good news in all this for travelers is the effect the slowdown is having on fares. Despite a domestic capacity reduction of some 3,000 daily flights in 2008, the airlines are being forced to reduce fares – at the same time they’re partially unwinding fuel surcharges. I spoke with the two most prominent airfare “gurus” on Thursday, Tom Parsons of BestFares.com and Rick Seaney of travel site FareCompare.com. Both predict that fares through the first half of 2009 will yield a bonanza of bargains for travelers willing to shop diligently and with flexibility. “It’s probably going to end up being worse than 9/11 for major airlines,” Parsons predicts. Seaney says the airlines are getting near the “holy grail” of $99 fares cross-country again, with many trans-continental routes currently selling for $109 each way. “The first week in January is a very, very heavy ticket-shopping period,” Seaney says. “If we see continued sales then we’ll know it’s pretty bleak” for airlines.

As of Dec. 18, one could fly round-trip from Washington D.C. to Vail, Colo., in January and February – the height of ski season – for $141. New York City to Hawaii, for travel through early Feb. 8, has been under $470 round-trip for more than a week. There are some Los Angeles-Boston fares at $115 each way, save for travel on Fridays and Sundays. These are not the fares of a healthy airline industry. We ought to enjoy it while it lasts – because it is likely not sustainable.