As Airlines values rise, will savings be passed onto customers?

Last week budget airline EasyJet announced their October 2015 sales figures, and as expected they reported a month on month rise compared to September. This builds upon an already record breaking first-half profit announced in May, and with the company relying heavily on summer tourism it seems 2015 is set to eclipse all records set my EasyJet last year, with many analysts predicting a forex revenue of £4.71 Billion, and adjusted net income of £544 million. This would be an astonishing 4.2% rise in revenue and 20.8% increase in net income

These results come on the back of strong figures released by both American Airlines and British Airways, with both companies averaging a 30% profit surge, and is certainly fantastic news for anyone who has invested in stocks and shares for any Airline. The question on many customers’ lips, however, is with many airlines growth on a seemingly endless upward trajectory, will there be any reduction in customer’s flight costs?

Sadly, no. On the face of it anyway. Many airlines attribute their growing profit margins to the steep decline in fuel prices, with the price of crude oil currently standing at $65 a barrel, 36% lower than the 2014 peak of $101.4. It is obvious to see that such a sharp drop on fuel, an airline’s largest expense, will inevitably lead to larger profits. The problem therefore lies within the fact that oil prices are unpredictable, and airlines are unable to raise and reduce their prices based on a fluctuating commodity for the simple reason that your delight in a 36% price drop, would be mirrored with equal horror at a 36% price rise once oil prices re-stabilise. There has however, been a call from consumer groups to freeze flight prices from their usual yearly increases until there has at least been some sort of return to the previous oil price of around $100 a barrel.

The general consensus from the airline industry though, seems to be that this is highly unlikely to happen as many airlines are instead using this high profit period to expand/upgrade their fleet and available routes, with the intention of passing greater savings onto customers over a longer period of time, rather than just flash in the pan, ‘Black Friday’ style ticket prices.

As a result of this, it is quite difficult to properly assess whether higher profits for companies will lead to lower prices for customers. The data does however suggest that there will be no difference to your pocket in the short term, but in the long term you could see serious savings on your airfares, coupled with greater choice of destination and a vastly upgraded customer experience.