American Airlines CEO Just Gave an Incredible Reason Why Fares Will Go Up (Prepare To Be Angry)

Absurdly Driven looks at the world of business with a skeptical eye and a firmly rooted tongue in cheek. 

Airlines have to make tough decisions.

Sometimes, though, those decisions end up being tougher for their passengers, rather than for the airlines themselves.

You might experience an involuntary shudder in several vital parts, therefore, when I tell you that American Airlines‘ CEO Doug Parker says that fares will likely go up “over time.”

In a call with analysts on Thursday, reported by the Associated Press, Parker offered a very simple argument.

Fuel prices have gone up by 40 cents a gallon, so fares will have to go up too — if that’s the way fuel prices keep going.

You might entirely understand. You might even have sympathy for Parker’s plight.

Perhaps you run your own business and when your costs go up, you simply pass them on to customers.

There is, though, one painful kink here.

Let’s go back to the heady days of 2015. That was a year when fuel prices went down by a lot over a whole year.

You might think, therefore, that airlines reduced their prices accordingly.

You might also think that sautéed mouse is about to become the world’s next culinary delicacy.

Here’s what the editorial board of USA Today had to say in 2015:

You have to go to a special website to see that domestic carriers are still adding hundreds of dollars in fuel surcharges to the cost of international flights. For example, the surcharge — now recast as a ‘carrier-imposed surcharge’ — for a round-trip flight on United between New York City and London is a whopping $516. That’s more than 40 percent of the total ticket cost of $1,192.

The cost of jet fuel had fallen by 50 percent since the beginning of 2014. Moreover, one of the alleged reasons baggage fees were introduced was to offset the increasing cost of fuel.

Surely, though, airlines offered excellent reasons as to why the surcharges imposed during times of high fuel prices had to stay.

It depends on your definition of excellence.

Alaska Airlines, for example, offered analysts an intellectual explanation, the succinct version of which was: “Sorry, we’re not lowering prices.”

Actually, I might have been a little generous with the Sorry there.

Let’s turn to for Airlines for America, the lobbying group that represents most of the big airlines, including American. It intimated at the time that airlines needed fuel prices to go down for a year before they might lower their fares.

I contacted American to ask for its current view.

It passed me to Airlines for America, whose spokeswoman offered me this: “Fuel is one cost variable of many airline operating expenses. As with any consumer product, it’s the marketplace and strength of demand that ultimately determines the price, rather than the cost of any one input.”

Ah, so Parker’s intimation may err toward the inaccurate?

But can it really be only the strength of demand that determines the price when, on some routes, there’s very little competition at all?

Airlines for America insists that fares are at historic lows. It’s a touch odd, then, that airlines want to hide the true cost of your fare in new legislation that’s marauding its way through Congress. (It passed the House on Friday.)

Of course, it’s worth noting that airlines have another way to raise fares. They can simply reduce capacity. 

After all, the big four airlines — American, United, Delta and Southwest — own 81 percent of all the seats on U.S. flights.

There’s currently no evidence that a strangulation of available seats will happen, but it’s always worth remembering that it can.

Parker did admit that he’s partly cheerful that fuel prices are going up. As Skift reported, he said that budget airlines will be affected more because their cost base is lower.

“As fuel prices have increased, their costs increase at a rate greater than rest of us,” he said.

The problem with airlines is that, all too often, the relationship between them and passengers is, from the passengers’ point of view, like dating someone who only wants you for your money.

It’s rarely a recipe for happiness, is it?

A little more choice, a little more competition and a lot more affection for the customer might alter that balance.

As Barbra Streisand once mused in a plaintive — but ultimately self-confident — duet with Donna Summer: “I always dreamed I’d find the perfect lover.”

The duet was called No More Tears (Enough is Enough).