One of the biggest factors that comes into the cost of your airline tickets is the price of oil. Since the market is so competitive and the products so similar, airlines operate on razor thin margins — margins that take a big hit when the price of crude goes through the roof.
This is why you hear all sorts of bellyaching from the industry when consumers lament the days of $250 transcontinental tickets. Oil has gone up dramatically over the last forty years while ticket prices haven’t matured in kind.
Allegiant Airlines, however, has a new strategy to mitigate the price of jet fuel. With their planned “variable-price” tickets, an additional fee added to your ticket will fluctuate with the price of oil. If tensions in the Middle East take off and oil prices spike? Then you pay a bit more for your ticket when you get the the airport. If the United States taps into its secret reserve and hands out oil in the streets in milk jugs? Then you get a little back when you head to the airport.
It’s genius in a way, because this way the airline can help mitigate the impact of oil on it’s revenue stream and passengers get the small slice of hope that their tickets might fall in price. It’s the perfect model for an airline based out of Las Vegas.
Scott Mayerowitz, AP writer hosted at the Seattle Times has the full details on the proposed plan. Note, the airline has not concrete plans to implement the variable priced tickets, but it’s a model that they’re heavily considering.
[flickr image via planetc1]