Although U.S. Airlines Report Flabbergasting Results, Fares Remain the Same

U.S. airlines reported higher than expected first-quarter profits boosted by significantly cheaper jet fuel and long-term cutting-cost plans which included about 150,000 layoffs, mergers, and financial restructuring.

However, the good news won’t translate into cheaper fares any time soon, analysts believe.

Since last summer, oil price and subsequently jet fuel price plunged by up to 43 percent. So airline companies were able to pull massive savings from fuel. Although recently crude price rose slightly, jet fuel is still 40 percent cheaper than it was last fall. As a result, airline profits jumped to unprecedented levels, although revenues remained constant or declined.

For instance, although it had fewer passengers and its revenue slipped 2 percent early this year, the $1.36 billion worth of fuel savings helped American Airlines earn a jaw-dropping $932 million.

Also, other U.S. airlines recently reported impressive figures for the first quarter. United Airlines earned $508 million with $1 billion savings on jet fuel. Southwest Airlines saw its profit triple to a whopping $453 million after a more than $400 million worth of fuel savings. Delta Air Lines tripled its earnings to more than $740 million because of huge fuel savings.

Such 1Q results are absolutely dazzling because this period is usually the weakest in a year for all airlines. Since 2000, U.S. airlines recorded first quarter losses almost every year.

But this year’s results maybe weren’t that stunning if the companies would have shared the extra savings from cheaper fuel with their clients by lowering fares. It was a management-level decision triggered by a steady demand of plane tickets.

According to a company that processes ticket transactions, the average cost of a round-trip ticket (taxes included) dropped by only $2 dollars from last year although the savings from fuel were breath-taking.

And as the busiest season nears – summer – airlines announced that they would increase their capacity by either using larger planes or adding more flights. But later this year, the companies may experience lower profits as their results would be compared with the low fuel prices from late last year.

American Airlines’ president announced that his company was poised to raise its revenue per seat for every mile the plane flies.

“There are all kinds of things we do to try to manage the business … and try to increase revenues.”

American’s head added.

American Airlines reported that the revenue per mile dropped last quarter by 2 percent. Additionally, the company expects an even sharper decrease in the second quarter by about 4 percent to 6 percent. United Airlines has the same issue, while Delta predicted a 2 percent to 4 percent decline.

U.S. airlines plan to tackle this problem by limiting international routes and further expansion later this year. As international flights are less profitable now because a strong dollar discourages demand for international flights, reducing capacity is the most appropriate solution. But a reduced capacity will also involve higher fares.

Another means to boost revenues is linked to the ability of U.S. airlines to cooperate with other airlines to set fares for international routes as the U.S. government shielded its airlines from antitrust lawsuits.

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