Low Oil Prices, Good or Bad for Airlines?

Airlines are some of the biggest consumers of oil around, and as I write this article I just imagine the Executives of companies like Delta or Southwest giddy that Bloomberg Investigators are now calling for $20/barrel oil. But has the lowered oil prices really had any affect on the net income of companies within the airline industry?

Before we dive deeper we need to establish a baseline for how much airlines were earning prior to the drop in oil. 

In the chart above the pink line denotes the net income of airlines, and the blue line indicates the price of oil – updated every five days. Our initial thoughts are in fact correct, as oil price drops the quarterly net income generated by airlines increases from around $190 million to over $9 billion quarterly. This is a massive jump, and a jump that I wasn’t expecting. However, like everything in economics there are any number of reasons why airlines are generating this much income. It could be that thanks to the lower gas prices people are saving, on average, $463 for every driver. That’s enough for a round trip ticket to Las Vegas from Atlanta. Take this extra disposable income and add it to the lowered operating costs generate massive profits for the airline industry. 

Over the next couple of weeks I will be writing a bunch of small articles around the economic implications of the rapidly dropping oil prices so stay tuned!