Airline Profits Will Sky As Fuel Costs Plunge

(RTTNews) - U.S. airlines are set to reap a significant windfall from plunging fuel costs, as a wave of consolidation and strong customer demand has left a few major fliers with considerable pricing power.

Oil prices may have 40 percent since June, but the International Air Transport Association said this week that it expects fares to fall only 5.1 percent in 2015.

Airlines simply face no particular pressure to drop fares in line with the last big drop in fuel prices that came during the Great Recession of 2008.

It appears that airlines are in a rare sweet spot next year -- streamlined operations, full flights, low fuel costs and an improving U.S. economy means the big U.S. fliers are likely to build on record profits from 2014, all while reinvesting billions on improvements.

Delta said today it expects pre-tax income in 2015 to increase 11 percent to $5 billion. The company sees a $1.7 billion benefit from lower fuel costs. Shares jumped 4 percent on the news.

Instead of the typical fare war brought on by low fuel prices, the major airlines will investing massive profits on new jets and retrofit existing planes in order to lure passengers willing to pay top dollar.

American Airlines, for instance, recently announced $2 billion in upgrades to its fleet, including souped up wi-fi and entertainment options, fully reclinable business class seats, and new lounges for frequent fliers.

Meanwhile, JetBlue, which has long had a reputation for its customer focus, is looking to return value to shareholders with some moves that won't please customers.

Last month, even as fuel costs were in retreat, JetBlue announced it will be adding a checked-bag fee, leaving Southwest Airlines as the only U.S. carrier to offer free checked bags to all its passengers.

JetBlue will also squeeze the legroom on most of its planes, adding capacity in a retrofit the carrier's A320 jets.

Small consolation for Delta fliers, as the company is experimenting with craft beer offerings on certain West Coast trips.

In any event, passengers are likely to go along with whatever the airline industry has in mind.

"It isn't that passengers are satisfied with fees, it's that they are simply less dissatisfied because they realize that fees have become a way of life with air travel," Rick Garlick, global travel and hospitality practice lead at J.D. Power, said earlier this year.

"Passengers are over the sticker shock of being charged more to fly, having to pay for checked bags, expedited security clearance, or for preferred seating."