Bloomberg Atlanta and Sydney
AIRLINES around the world are poised for a $12 billion (R140bn) windfall as the global oil crash cuts bills for jet fuel, the biggest expense in an industry that was battered by surging commodity prices last decade.
The savings promise to produce fatter profits and, in the US, rewards for shareholders through sweetened dividends or stock buybacks. Missing out so far are consumers, because many carriers are still filling seats without having to resort to discounts.
Tailwind
Unlike 2008 and 2009, when sagging travel demand damped the boost from fuel plunging 51 percent from its peak, crude’s collapse to a five-year low is providing a tailwind for airlines posting record earnings. Profits in 2015 will swell 25 percent to $25 billion, according to the International Air Transport Association, the trade group for the world’s major airlines.
“They’re dancing in the aisles of their planes,” said George Hobica, the president of New York-based ticket-price website Airfarewatchdog.com. “All the production in the United States, shale oil and the fact that Opec has not increased production – maybe high oil was an aberration.”
Investors are welcoming a respite from Brent crude that averaged more than $100 a barrel in 2012 and 2013. Led by China Eastern Airlines and Air China, the Bloomberg World Airlines index has soared 25 percent this quarter while Brent tumbled 37 percent.
Timely
“The price slump could hardly have come at a better time for South-East Asian airlines,” said Peter Harbison, executive chairman of CAPA Centre for Aviation in Sydney.
US carriers, strengthened by mergers since 2008, are also poised to take advantage of the new era. American Airlines Group, which does not hedge its fuel purchases, said it might save more than $2 billion next year.
“Falling oil prices are a fantastic thing,” Southwest chief executive Gary Kelly said.
Industrywide fuel outlays in 2015 would drop to $192 billion from $204 billion this year even as consumption rises 4.8 percent, Geneva-based Iata said.
Brent crude has tumbled 46 percent, ending yesterday at $59.86 a barrel.