www.CostaRicaTicas.com

Prices have not been this low in years.

Premium gas in Austin, Texas hit $1.99 a gallon today. Price of gas is having a positive impact on the cost of a great deal of items, including air fares.

You would think so, but gas started falling a looooong time ago and prices held steady until more recently they are starting to come down. Very few people know how airline pricing works; one of my finance professors in grad school helped create the pricing system algorithms that airlines use. He explained it to us, but I have long forgotten it.

Yeah, it's like $2/gal in NYC too now. I can't remember when it was this low.

As far as I have researched, typically the current price of fuel doesn't affect the airline's business models.

The airlines arrange for long term contracts for their fuel, and it becomes a predictable budget item.
Sometimes they locked in a lower rate than the current available price, sometimes they are locked in a a higher rate.

The fares fluctuate more due to them trying to fill every available seat, on every flight.

_________________
Having too much fun. 8)

True on the way down, but when fuel price rises, they use that to jack up the fares and add fuel surcharges to tickets.

Not all airlines hedge their fuel costs with futures contracts. Southwest was famous for doing this some years ago and that's why they could offer $49 tickets. Many airlines got into it after that, but some choose to not do it or only hedge a small percentage to avoid taking a big hit if the price goes the other way. It can be costly if they predict (read: guess) wrong and the fuel price changes direction; they can take a big hit because futures contracts are just that, contracts, so they are locked into buy a predetermined quantity of fuel at the predetermined price. Delta will take a $1.5 BILLION hit on fuel futures contracts this year. If they got locked into say $3.00/gal but the fuel price drops to $2, they are still required to buy X number of gallons at the contract price of $3. Some analyst is getting a pink slip in his Christmas stocking this year.

If it's an options contract (versus a business contract) then they stand to lose only the cost of the option by walking away rather than exercising it.

_________________
bypassin' kinky, and usin' the whole chicken!!!

Nobody mentioned options