Zebra wrote:
You would think that at some point, the cost of fuel would have to enter into the equasion....for all the airlines.
Z,
In the long-run, it has to, but that's not necessarily true in the short-term. Let me explain. The airline industry has heavy competition and constant pricing wars. Their planes are constantly flying whether they have 5 passengers or 150 passengers. Therefore, an smart airline should be willing to lower their prices enough to compete with other airlines (i.e. attract passengers) in that market, even if it means actually taking a loss on the flights.
The costs for an airline to make a flight are almost 100% fixed. (OK, if there are fewer passengers (less weight), you burn less gas, but the difference is irrelevant.) It has almost no variable cost. Therefore, every extra passenger costs you NOTHING more and gains 100% of the fare. Even if the regular fare should be $300, making $100 (losing $200) for the airline is better than making nothing (losing $300). By flying almost empty planes you lose a ton of money, whereas having a plane full (even at very low fares), reduces your loss for that flight. Sometimes, it's a choice between lose little or lose big.
But in the long-run, you are 100% correct, airlines will not be able to sustain these losses, and at some point will ALL have to raise their fares to stay in business.