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Would You Buy an Airline Ticket that Fluctuates with Fuel Prices?

Nevada-based Allegiant Air has written a letter to the Department of Transportation stating its intention to introduce a new whole new meaning to the definition of a flexible ticket:

When making a purchase, consumer would be able to choose between a traditional "locked in" fare that would not fluctuate, and a lower fare that could change before the date of travel. That lower fare could be reduced further or could increase (up to a set maximum that would be clearly disclosed) depending on changes in fuel price between the booking and travel dates.

Theoretically, this type of fare could save you money if you buy at a cheap price and oil drops further. But let's be realistic: how likely is it that an airline is ever going to refund money if their costs drop?

I would think such a program would be a logistical nightmare. How are additional costs processed? Couldn't a consumer just cancel his credit card after purchasing a ticket? Would the airline deny consumers both boarding and a refund if they purchased one of these tickets and refused to pay up when fuel prices climb higher?

And just how would it be determined whether a fare increase is applicable or not? Would there be any sort of accountability other than a price ceiling? I might be a bit more comfortable if the airline published clear benchmarks stating if oil reaches this price, the fare will go up this much.

Charter airlines have tried this model before, but Allegiant would be the first U.S. commercial carrier to offer such a pricing structure. If they succeed, might we ever it see it on the majors? It will all depend on the specifics, but with the way American Airlines is re-inventing the airline booking process, I cannot say that I would be surprised.

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Comments

#1
Sean February 28, 2011 at 06:01 pm

I agree, I wouldn't be okay with this without absolutely clear-cut transparency. One of the biggest reasons we have exchanges like the NYMEX is to have price transparency across the market. We'd need the same transparency on Allegiant's pricing formula for this to work or be fair.

The basis for the formula would have to be something clearly available to the traveling public and it would have to be based on a price that Allegiant has no control over. A good solution would be to have it be based on the previous day's close of NYMEX crude. They could have a ticker in the corner of their homepage along with a link to a trusted third party website, such as the NYMEX's homepage to give the number credibility.

Without such measures we'd have to trust that a business would be willing to avoid the temptation to use some fuzzy math on the numbers, something I wouldn't trust most corporations not to do.

In terms of the Credit Card cancellation problems, they could just charge you the maximum amount on your credit card right away and then refund any applicable fees.

Allegiant must be thinking that this would be an easy way to save money when open market hedging has become expensive due to market volatility but I wonder if they're accurately considering all the customer service and administrative overhead that could come with delivering a more complex fare product to the traveling public.

#2
Michael D March 2, 2011 at 04:24 pm

One of the reasons for one or more rounds of the additional baggage charges was because of the increase in oil prices at the time. Since those time the cost of oil dropped quite dramatically. Did the airlines drop those charges? No. Of course today the price of oil is re-approaching those prices but during the interim we did not receive any relief.

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