A Lift From Oil Prices

on
May 06:

Airlines are reaping a tremendous windfall from falling oil prices, but travelers should not expect to share in their gains anytime soon — at least not in terms of lower airfares.
With business travel on the rise, airlines have little trouble filling planes, and no incentive to reduce fares. Most flights are full, and airline executives say they expect business travel to keep growing this year.
“The fact is that people are prepared to pay the airfares at these levels,” said Caroline Strachan, a vice president for American Express Global Business Travel. “This is probably the most perplexing challenge for our clients. Just because oil prices are going down doesn’t mean that fares are going down. The reality is that airlines over the last few years have gotten so much smarter with the way they manage their revenues and their routes.”
Edward Bastian, the president of Delta Air Lines, said in a conference call with analysts on April 15 that corporate revenue had grown by 3 percent in the first quarter despite the stronger dollar, which raises ticket prices in other currencies. The biggest drivers, he said, were Delta’s trans-Atlantic venture with Virgin Atlantic to London, and the strength of the financial services industry.
“Our recent survey shows corporate travel managers continue to be optimistic about the remainder of the year, with roughly 85 percent of respondents anticipating they will maintain or increase spending over the balance of the year,” Mr. Bastian said.
Lower fuel bills are providing a significant tailwind to the airlines. They are offsetting weaker international sales, a stronger dollar and losses at several carriers from fuel contracts that were locked in when oil prices were higher. American Airlines, for instance, said its fuel bill fell by 40 percent in the last quarter compared with the period last year. Delta expects to save more than $2 billion because of the lower fuel bill.
All this is translating into record-breaking earnings for the airlines this year as carriers have all posted big increases in profitability. The airlines are reaping the benefits of their drive to consolidate and merge and manage their capacity more tightly with demand.
“The airlines are in a pretty good position right now,” said Eric Bailey, the corporate travel manager for Microsoft. “They’ve gotten so much better at managing their business. They know so well how many people will show up for a flight.”
For business travelers, there may be a silver lining in the domestic airline industry’s return to financial well-being. After more than a decade of bankruptcies and failures, airline executives insist that some of that cash is getting reinvested into their business.
Airlines say they are improving their long-distance flights with better seats and an emphasis on service. In the domestic market, several airlines said they would bring back larger twin-aisle aircraft for transcontinental flights — between New York and Los Angeles or San Francisco.
Airlines are also expanding their offerings of premium economy seats. This is a notable addition for corporate managers who still want to make every dollar count but are also focused on travelers being rested and productive after they step off the plane, particularly after a long flight.
“It’s all about travel productivity,” said Michael W. McCormick, the executive director of the Global Business Travel Association. “There is a great opportunity here. Will the big three airlines truly improve the product, buy new aircraft and have better seats because this is what matters to the business traveler? If they do so, I don’t think you’ll hear much complaint about fares.”

Source: http://www.nytimes.com/2015/05/07/business/a-lift-from-oil-prices.html?&_r=0

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