U.S. airlines are loving the drop in oil prices.
Fuel is the largest expense for airlines, accounting for more than a quarter of their operating expenses. While drivers are excited about gas at $2 a gallon, their savings are likely to come to just $10 a week.
By comparison, Delta Air Lines announced last week it would save $40 million for every penny it saved in fuel costs. And because jet fuel prices have already fallen by more than a third this year to $2.30 a gallon, Delta projects full-year savings of $1.7 billion.
Airline profits are already expected to hit a record this year, and thanks to low fuel prices they should climb even higher in 2015, according to a report issued by the International Air Transport Association last week
Airline stocks as a group are up 34% this year, and the major U.S. carriers – American Airlines, United Continental and Delta – are all faring even better than that. Shares of Southwest have more than doubled, making it the best performer on the S&P 500.
U.S. carriers filled a record 84% of their available seats through the first nine months of this year, according to the U.S. Department of Transportation. That high demand makes it unlikely that airfares will decline even with the drop in fuel costs. Fares are up about 3% for 2014.
Additionally, baggage fees bring in nearly $1 billion per quarter for the industry, and change fees bring in more than $700 million on top of that.
That’s made some folks angry. U.S. Sen. Charles Schumer on Sunday called for the Justice and Transportation departments to investigate air fares and airline profits, and why the fuel savings are not being passed onto customers in the form of lower fares.
“It is curious and confounding that ticket prices are sky high and defying economic gravity,” said Schumer. “Ticket prices should not shoot up like a rocket and come down like a feather.”
But the industry defends its pricing and profits, saying carriers need to recover from years of losses. They say they need to make money while they can to upgrade the aircraft and invest in the business.
Speaking to investors last week about the industry’s newfound profitability, Delta CEO Richard Anderson said: “It’s really very good for consumers, very good for investors, good for employees…and good for communities we serve.”