Low oil prices boosting U.S. airlines’ profits

Low crude oil prices have resulted in lower fuel costs and operating expenses for U.S. passenger airlines, according to U.S. Energy Information Administration. In 2015, earnings of passenger airlines rose 241% to $25.6 billion, from $7.5 billion in 2014, according to the Bureau of Transportation Statistics. The rise can be attributed to the decline in kerosene-based aviation fuels, which fell $16.5 billion in 2015, from 2014.

Spot prices for jet fuel fell 18% to $1.25 per gallon in 2016, from $1.53 per gallon in 2015. The prices were “well below the average of $2.92 per gallon over the 2011-2014 period,” the EIA shows. In 2014, fuel expenses were nearly the same as labor costs. “Fuel costs decreased significantly in 2015 as jet fuel prices declined. Many airlines hedge their fuel expenses by locking in fuel prices as insurance against the volatile nature of fuel prices; however, these fuel hedging efforts likely declined as fuel prices trended downward.”

The rise in earnings for airlines “have likely lessened capital constraints on efforts to modernize commercial fleets through purchases of leases of new, more fuel-efficient aircraft,” according to the EIA. When fuel prices increase, airlines are also motivated to improve the efficiency of their operations and fleets. “Operational changes such as increasing flight load factors (i.e. reducing the number of empty seats) and changing the routes and speeds flown can also increase fuel efficiency.”

Worldwide, the average fuel efficiency for new commercial aircraft rose 1.3% annually, between 1968 and 2014, according to the International Council on Clean Transportation. How fuel efficient an aircraft is depends on its range, size and seating capacity. New aircraft are “significantly more efficient than the average aircraft in the existing commercial fleet,” according to the EIA. “For this reason, policies that may encourage more turnover of the existing fleet, including policies that affect aircraft emissions and noise standards, can accelerate improvement in fleet-wide efficiency.”