Now just find my bags...

Yes, oil price crash is a boon for fliers

By Nicholas E. Calio

(NOTE: This is the future of 'news' in America, stories like this are paid for, to be printed so they seem like a news story. But in fact they are advertisements, paid by companies to get a message out of influence opinion.) 

Fuel is a critical resource with volatile pricing, as anyone following the energy sector would surely attest.

This price volatility, though, has also given rise to an expectation untethered to reality: when oil prices drop, airline tickets must surely and immediately follow. Interestingly, no one asks why airfares don’t skyrocket when oil prices spike. But the answer in both scenarios is the same: as with any consumer product, it’s the marketplace that ultimately determines the price, rather than the cost of any one input.

The fact is today’s lower fuel prices are benefiting airline customers every day, and in many ways. Airlines are investing billions in new products and planes, paying down debt, rewarding employees and investors, expanding service and yes, even lowering fares.

In the first half of 2015, the price to fly a mile on U.S. carriers declined year-over-year in every major region: domestic, Atlantic, Latin and Pacific. But this dip isn’t about any single thing, such as the cost of fuel. The prices reflect a competitive marketplace in which many airlines are vying for the same customers.

Airline tickets have continued to be an incredible value, no matter how you break down the numbers. In fact, between 2000 and 2014, the price of a domestic airline ticket has not kept pace with inflation even as the price U.S. airlines paid for jet fuel increased more than 250 percent during that same period. When one looks at the cost of everything from college tuition to prescription drugs to a ticket to the movies, all significantly outpaced the cost of a domestic airline ticket during that same period.

Though U.S. airlines are profitable today, this has not always been the case. Indeed, U.S. airlines lost $63 billion from 2001 to 2010. Only recently could airlines begin to do what other companies and industries do with regularity: invest to improve their products, to grow the business and to ultimately give customers a greater value and choice.

U.S. airline profitability — at 14.5 cents of pre-tax profit for every dollar of revenue in the first half of 2015 — is now coming in line with many other American companies. Apple (31.5 cents) and Starbucks (21.1 cents) have higher profit margins, and each company has continued to reinvest in new products and innovations while producing significant value for their shareholders.

America’s airlines are doing the same, pumping money into infrastructure and service offerings, paying higher wages to employees, reducing debt and returning cash to shareholders. Nearly 50 percent of cash flow from operations, or half of every dollar coming in, is being reinvested by the nation’s top 10 airlines. That translates to a total of $1.4 billion per month, or just shy of $23 per enplaned passenger for the first six months of 2015.

Having shed one-third of its workforce from 2000 to 2010, airlines are now hiring again, and in fact have added jobs for 19 straight months. Given that the commercial aviation industry drives 5 percent of the total U.S. economy, and one out of every 12 U.S. jobs points back to this industry, this is good news that reaches well beyond America’s air carriers.

Airlines expect and plan as best they can for what will always be volatile energy markets. U.S. carriers are making important gains in fuel efficiency, having carried 20 percent more traffic using 8 percent less fuel over the past decade. The fiscal breathing room that the industry is experiencing today positions us to better weather the uncertainty that we can expect — count on, really — in the years ahead.