TMG Insights

Airport Transportation

Lower Airfares Coming in 2015

Airlines Expect Record Profitability on Falling Oil Prices

Drivers across the country have seen noticeably lower prices at the pump lately, with the price of crude oil falling to five-year lows and closing in on $60/barrel.

Now, air travelers may be seeing lower prices in the New Year as well.

jet fuel coffeeBecause of oil price drops attributed to a glut in US supply from shale, and corresponding reductions in the cost of jet fuel, the International Air Transport Association announced today a revised airline industry 2014 profit estimate of $19.9 billion (up from $18.0 billion just this past June). Profits are expected to balloon to a record $25.0 billion in 2015.

The industry expects to pass along a portion of the savings to consumers, with passenger fares projected to fall 5.1% and cargo rates coming in 5.8% lower, after adjusting for inflation.

Just a 5% price cut, though? On record profits?

The fact remains that the airline industry is more competitive than ever and is dealing with cost pressures that will eat into any savings on jet fuel. Next year, the industry will have to take in $783 billion in revenues to see their $25 billion in profits, for a margin of 3.2 percent.

IATA Chief Executive Tony Tyler made a comparison to a familiar brand – Starbucks, which has a profit margin of 14 percent. “[This company] will retain as much from selling seven cups of coffee as an airline will make selling an average ticket,” Tyler noted.

Just don’t mix flying with drinking seven cups of coffee.

Contributed by:

Ryan McNeely, MPA

Associate


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