Reader csam27 asked the following question in the Ask Lucky forum:
Since the Brexit, the pound has been in free-fall and could soon reach an all-time low against the dollar. I want to purchase tickets to the UK from the west coast in March, specifically from Phoenix. Right now, flights seem to be very low, around $750 round trip/person in economy on a direct flight with BA. My question is simple: who has the magic ball to see how low prices will go, and when will be the perfect time to buy?
Let me start by saying that a few days ago Tiffany wrote a fantastic post entitled “UK Votes To Leave EU: How It Impacts Travelers,” which addresses the long term implications that Brexit could have on the airline & travel industries.
My goal with this post isn’t to say “yay let’s travel to the UK for cheap,” but rather to briefly address the impact that currency fluctuations can have on airfare.
To state the obvious, we have absolutely no clue what’s going to happen with the recent Brexit vote. We don’t know if they’ll actually follow through, we don’t know the long term impact it’ll have on the global economy, and we don’t know the impact it’ll have on airlines. There are a lot of questions with very few answers.
What we do know is that in the past week we’ve seen the value of the GBP drop from 1.50USD to 1.31USD.
That of course lowers the cost of purchases for foreigners in the UK (and sucks for those in the UK traveling abroad).
But to address csam27‘s question, does the falling value of the GBP impact the cost of airfare originating in the US, which is priced in USD? In other words, will the cost of airline tickets to the UK decrease even further?
The short answer is no. Airlines take a lot of risks with currencies, as they’re always trying to adapt to local markets. Airlines intentionally price airfare in local currencies, not directly tying it to their home currency. That’s because they have to compete with foreign airlines, and not just in their home market. Sometimes they’ll win with currency, sometimes they’ll lose, and sometimes they’ll all balance one another out.
All of this is to say that just because the value of the GBP is falling at the moment, doesn’t mean the cost of airfare priced in other currencies for travel to the UK will fall as well. Similarly, the price of airfare originating in the UK priced in GBP should remain roughly the same, rather than going up.
In theory decreased demand for travel to/from the UK has a higher chance of impacting pricing, though I’m not sure we’ll see that. If the GBP remains fairly weak, in the short term demand for travel to the UK may actually increase, rather than decrease.
Bottom line
The current Brexit situation is complex and uncertain, so I wouldn’t try to overanalyze it to get the best price on airfare. I don’t expect we’ll see any major changes in the prices of airfare to the UK, and I don’t think we’ll see any major changes in the price of airfare from the UK (at least priced in GBP, which would represent a change for those indirectly paying in different currencies).
$750 sounds like a great price for roundtrip travel from the west coast to the UK. If you’re comfortable with that price, I’d go for it. There’s always a chance the airfare goes down a bit, but I don’t see it going much lower than that. Similarly, there’s also a chance airfare goes up, which you presumably want to shield against.
So my advice remains the same as always — book a fare you’re comfortable with, don’t overanalyze it, and enjoy not stressing over a fare possibly going up or down a few dollars.
Like any multinational, British carriers purchase short and medium term locked in exchange rates from their banks. So, the ones who are taking the hit at moment are the banks.
Where the airlines are probably taking a little hit is in fuel prices. I would not be surprised if they pay for all of their fuel (either in the "dis-United Kingdom" or other countries) in USD.
Airline seats are like tomatoes in a market....
Like any multinational, British carriers purchase short and medium term locked in exchange rates from their banks. So, the ones who are taking the hit at moment are the banks.
Where the airlines are probably taking a little hit is in fuel prices. I would not be surprised if they pay for all of their fuel (either in the "dis-United Kingdom" or other countries) in USD.
Airline seats are like tomatoes in a market. They have a shelf-life. It is obvious that British carriers will adjust price in order to avoid fly planes with empty seats. In others words, they are not going to any hit from traffic flying to or through the UK. You probably will see a drop in the number of passengers originating from the UK.
Poor Brits. When you pray for rain, you have to deal with the mud.
A friend of mine purchased an airfare on Air Canada from the West Coast to LHR for $475 yesterday (travel in November, mind you), so there has certainly been a steep decline in the last few days.
Shares in IAG (parent company of British Air) have fallen about 25% in the last couple of trading days. That's predicated on a loss of premium business travel. So one conclusion might be that leisure travel from the US and elsewhere to the UK will increase as the UK appears 12% cheaper now due to the fall in the pound. But business and first class tickets may be less in demand.
So, more sale offers of premium seats, perhaps?
@Ben, However, this might be a good time to prepay for hotels/cruise lines that base their fares in British Pounds. Right? Perhaps you could provide us with some good UK links.
What about UK taxes on award tickets. Presumably those are denominated in GBP and will become cheaper in USD. I wonder if you can reprice award tickets that were booked months ago to get the lower taxes now.
I wish
Look at Emirates,
They have the ability to lie to everyone that they're passing the lower Fuel surcharges over to their customers, while actually the tickets cost more than before.
As an Emirates Frequent flier I can tell you that for sure and please let's NOT talk about their loyalty program which is not even worth the plastic that it's printed on.
I am no economist but if the pound has lost value (and doesn't rebound) and oil is priced/purchased in dollars wouldn't that mean that BA will be paying more for fuel? And might that cost be passed on to customers at some point? Maybe this is a good time to go.
@ Donna -- Yes, they'd absolutely be paying more for fuel, but if there's one thing we've learned over the years it's that the cost of airfare isn't really tied to fuel, but rather demand. Airlines were losing billions of dollars when oil prices were high, while they're now making billions with low oil prices. It's all about demand, and not actually about the cost of providing the service, given how airlines have very little...
@ Donna -- Yes, they'd absolutely be paying more for fuel, but if there's one thing we've learned over the years it's that the cost of airfare isn't really tied to fuel, but rather demand. Airlines were losing billions of dollars when oil prices were high, while they're now making billions with low oil prices. It's all about demand, and not actually about the cost of providing the service, given how airlines have very little control over how much inventory they can sell on a day to day basis (since you can't practically just park your fleet for a slow week, etc.).
The one thing I don't see in the article is the price floor for travel specifically in and out of LHR. To my knowledge, the most expensive airport in the world, has taxes and fees around $600 for a roundtrip from the US. I flew DFW-LHR on AA last month and though the actual fare was only $100, the total cost was $785. Still a fantastic fare for roundtrip from USA to UK, but nothing...
The one thing I don't see in the article is the price floor for travel specifically in and out of LHR. To my knowledge, the most expensive airport in the world, has taxes and fees around $600 for a roundtrip from the US. I flew DFW-LHR on AA last month and though the actual fare was only $100, the total cost was $785. Still a fantastic fare for roundtrip from USA to UK, but nothing like the ~$300 Norwegian fares (they fly out of LGW). Thus, there isn't much room for prices to fall on LHR routes. What could be interesting is the cost of premium cabins, where there is more room for movement.
Since airfare currency exchange rates are only adjusted once a week there is a short term chance to get approx 10% off airfare that is denominated in GBP. Just use a UK based OTA like expedia.co.uk and a credit card that doesn't charge a fee to realize the discount until Tuesday night.
London and UK is lower than $750 today from most cities in the USA. Major nationwide fare sale from AA, DL, UA to most of Europe in one of the best fare sales of 2016.
Ticket prices to London have been lower during this past month from many cities across USA than it has been for years.
Just my 2 cents, but I'd be very happy with a $750 airfare to London, I'd lock it in.