Are you worried about airfare going up due to higher jet fuel prices? Folks, don’t worry about it… airfare is actually going to go down, and it’ll be cheaper than ever befores! Or at least that’s what we’re being told to believe.
In this post:
Transportation Secretary spins high oil prices as a positive
Second generation Fox News host Peter Doocy interviewed Transportation Secretary and former Fox News colleague Sean Duffy about the current situation that’s impacting the airline industry, in light of the conflict with Iran, the closure of the Strait of Hormuz, etc.
As many may remember, just a few days ago, President Trump assured us that Iran had agreed to never close the Strait of Hormuz again. Never, ever, ever, ever again! That was seen as a huge sign of relief for the airline industry. The only problem is that two days later, Iran once again closed the Strait of Hormuz.
It’s obviously an incredibly challenging time for the airline industry, since airlines just can’t afford for jet fuel prices to double (or more). The airline industry is low margin and highly competitive, and they also don’t have the ability to raise fares that much, given that pricing for airfare is elastic, and higher fares send down demand.
So that brings us to Doocy’s interview with Duffy, where Duffy claimed that we’re seeing a “small spike” in jet fuel, but somehow when this conflict is over, jet fuel prices will be even less than they were before the conflict, and consumers will also be paying less for airfare:
Doocy: “So let’s start here. The strait is closed, the strait is open, the strait is closed again. Now there’s some bad news from Delta Air Lines, there’s this Bloomberg story, the quote is ‘we have to find ways to get that cost passed through to consumers,’ Delta CEO Ed Bastian said, ‘it won’t happen overnight.’ Secretary Duffy, that’s not good.”
Duffy: “So first off, a lot of the carriers are eating the cost increase of jet fuel right now, good side is we have great supply chains for jet fuel into the US, that’s not always the story in the rest of the world, because of Donald Trump’s energy dominance initiatives that he started over a year ago. But listen, we’re having a small spike in jet fuel. But if you look in the out years, we think once this conflict is over, we’re going to see jet fuel go lower than it was before the Iran conflict, so yes, a small disruption, hopefully for a short period of time, but in the long run, it becomes cheaper for Americans to travel because of decreased jet fuel prices.”
Would anyone like to take Sean Duffy’s side with these claims?
I agree with Duffy that airlines are having to absorb most, but not all, of the increased cost of jet fuel. That’s simply because airfare is driven by what consumers are willing to pay, rather than by the cost of operating a flight. That’s why airlines operate many flights at losses, because it’s all about generating incremental revenue, to cover very high fixed costs.
We are seeing airlines try to decrease capacity in order to drive up costs, and we’ve also seen airlines increase checked bag fees. But an actual widespread fare increase is challenging.
But here’s the more fundamental issue — unless things go back to normal very soon, the airline industry is in massive trouble. Airlines simply can’t make money with jet fuel prices where they are. The world’s most profitable airlines will be losing money (though have the luxury of sustaining those for a while), while the world’s other airlines may not be in business for very long. And suffice it to say that airlines going out of business, or even just shrinking a bit, will cause the cost of airfare to increase, given that supply will decrease.
While I think Duffy is completely gaslighting people by suggesting that this is just a “small spike” in jet fuel prices, it’s his long term claims that I find to be most dubious. He thinks once this conflict is over (if that happens any time soon — again, highly questionable), it’ll actually be cheaper for Americans to travel than before the conflict, because jet fuel prices will be lower than they were before?
Could he show his math on those claims, please, that things will be better than ever before? It’s funny, because he says airlines are eating the cost of the increase in jet fuel, but if jet fuel prices go down, he thinks airlines will just pass on all of those savings to consumers?
What will ultimately have the biggest negative impact on airfare is airlines going out of business due to the spike in jet fuel, given that less competition will lead to higher fares.
Either Duffy is lying, or he’s dumb. I don’t know which it is, but no matter how you slice it, his narrative just isn’t right.
Bottom line
I don’t envy the position Sean Duffy is in, having to positively spin a massive crisis that the airline industry can’t sustain for long. But hey, he sure managed to come up with quite the narrative. We’re currently seeing a “small spike” in jet fuel, and most airlines are “eating the cost increase of jet fuel.”
But worry not, “once this conflict is over, we’re going to see jet fuel go lower than it was before the Iran conflict,” and “in the long run, it becomes cheaper for Americans to travel because of decreased jet fuel prices.”
Make it make sense, please?
Where did he say 100% of lower fuel costs will be passed to consumers? Liberal logic draws the worst conclusions to drive their anti-Trump rhetoric. Of course airlines will recover their losses. The positive side of this story is that the industry is strong and stable enough for companies to absorb cost uptick. The world economic order is being reset back to what it once was, USA as #1 economic power, and China takeover is being stopped dead in its tracks.
First Scott Kirby about UA merging with AA and now Sean Duffy.
Idk I could see it (but I’m not necessarily saying Duffy was thinking any of this) - oil bros are heavily investing in alternative sites away from the Middle East. Fundamentals of economics- increased supply especially when ME resumes full capacity. Problem is that is years away from materializing. In the short term, high costs could push some airlines to restructure. Lower their cost structure, particularly on labor- given how elastic demand is for airfare,...
Idk I could see it (but I’m not necessarily saying Duffy was thinking any of this) - oil bros are heavily investing in alternative sites away from the Middle East. Fundamentals of economics- increased supply especially when ME resumes full capacity. Problem is that is years away from materializing. In the short term, high costs could push some airlines to restructure. Lower their cost structure, particularly on labor- given how elastic demand is for airfare, they could then lower ticket prices as that will cause a spike in demand.
Is any of this what he meant? Probably not. But economy airfare adjusted for inflation is continuously decreasing - no reason it will suddenly stop now once this period has passed
I completely agree with Ben that Duffy - and all of the cabinet and administration - is gaslighting the American people about the degree and length of fuel price increases because the Iran conflict has gone very differently than what they had hoped.
That said, I do understand the logic for lower long term fuel prices IF things turn out the way they are planning. Iran's oil - just like Venezuela's - was not...
I completely agree with Ben that Duffy - and all of the cabinet and administration - is gaslighting the American people about the degree and length of fuel price increases because the Iran conflict has gone very differently than what they had hoped.
That said, I do understand the logic for lower long term fuel prices IF things turn out the way they are planning. Iran's oil - just like Venezuela's - was not being sold freely on global markets, in part because of western (including US) sanctions. Venezuelan and Iranian oil was going to their benefactors but not to the global market. They have crowed that Venezuelan oil is now flowing to the global market and not propping up countries the US does not like and expect the same thing to happen to Iranian oil. Iran is not going down like Venezuela did.
Specific to the airline industry, the longer timing of timing of the conflict and the amount of oil price hikes will mean that there will be substantial damage to the airline industry; failures in some quarters, consolidation in others.
Does this really make such a huge difference? If major energy importers such as India and China are able to procure oil outside of the main global commodity trading mechanisms, surely they'll just buy less of it through those channels and the overall effect on prices will more or less balance out on a global scale.
Better question: would anyone like to raise their hand and feel sorry for airlines? Tell the airlines to go cry in the lap of Amex, Chase and Citi.
Politicians (and readers) on both sides of the aisle can say what they want. The proof will be in the pudding. For the two years prior to the present circumstances, oil was trading in the $55 to $60 per barrel range. In a year, let's revisit the matter to see what has actually unfolded. In two years. In three years.
In other news, Cathay Pacific has reopened the newly renovated Wing First Class lounge :D
Sean had a few too many Duff beers...
It seems that what matters nowadays is believing only in the ideas that you like or make you look good, even if they're patently false.
What do you expect from C and D class students in this administration. But I am reminded of an Orwell quote:
"The Party told you to reject the evidence of your eyes and ears. It was their final, most essential command."
The US economy will, as it has done so before, take the world economy off a cliff, and into a deep recession, only this time, marked by stagflation, sustained high energy prices (and food too), all thanks to "America First". The country and its leadership are imbeciles.
Well, maybe he is saying the quiet part loud.
With a deep depression, oil price would plummet but no demand due to job losses. Remember 2002 or 2009
What else can you expect from a cabinet full of sycophants and/or morons?
It's an obvious point, but you're do TDS inflicted to see it. Iran has been at war with the US and israel for 45 years, this didn't start overnight. Remember they attacked Israel unprovoked, ostensibly due to Israel defending themselves against Palestinian terrorists. They've been creating instability in the ME for decades.
Iran will no longer have the military capability or the hard currency (no pallets of cash airdrops incoming) to threaten their neighbors...
It's an obvious point, but you're do TDS inflicted to see it. Iran has been at war with the US and israel for 45 years, this didn't start overnight. Remember they attacked Israel unprovoked, ostensibly due to Israel defending themselves against Palestinian terrorists. They've been creating instability in the ME for decades.
Iran will no longer have the military capability or the hard currency (no pallets of cash airdrops incoming) to threaten their neighbors directly or through proxies. Once a more moderate group gets into power there, the regional stability, security, and ultimately more investment (see Venezuela), supplies will increase and prices decrease.
So on the flip side, post war with a weakened Iran, why would you believe oil prices will be higher than before the war?
TDS works both ways there, bootlicker.