While many industries and consumers are reaping the benefits of lower oil costs, none are as excited as US airlines. For the first time in many years, US airlines were able to post massive Q1 profits. For example, Jet Blue posted an operating income of $253 million in the first quarter of 2015. This is compared to their operating income of $41 million in the first quarter of 2014. With oil costs down significantly since 2014 and airliner demand steady, airlines have enjoyed a larger profit margin, a very welcome sight in an industry that boasts around $6 profit a passenger. While many consumers will hope to see cheaper flights, it seems that may be a pipe dream as the average round trip ticket including taxes right now is $454, only $2 dollars cheaper from last summer. However, consumers may see some benefits. Lower prices may allow carriers to add additional flights on weak travel days and increase the number of flights overall. So if prices do not drop, consumers may have added convenience in choosing when and how to fly.
These large profits for airlines are a welcome blessing as large airlines have struggled in recent years. Deregulation, increasing foreign competition, high oil prices, over extended fleets, and the 2001 terror attacks that wiped demand for airline tickets for about a year have all hindered domestic airliners. After a massive restructuring, which included dropping 150,000 jobs across the industry, management changes, and now lower oil prices have finally made airlines extremely profitable again.
Another important issue is whether lower oil prices will reduce new plane orders. A few years ago, when oil was more expensive, adding newer, more fuel efficient planes seemed to be a savvy way for airliners to be able to compete in the market. As seen to the left, barring the 2008 recession, new plane orders have remained high and growing. Now with oil prices low it may become profitable to eke out a few more years with older less efficient planes before ordering new ones, especially given the lengthy time process in ordering and receiving new planes, sometimes upwards of 5 years. This will be a long term calculation that will affect the airline industry and will depend heavily on how long we will have these low oil prices.