If you’re going to fly, you have to use fuel. Yes, that may seem obvious, but it’s an aspect of the airline business that a lot of passengers may not fully appreciate, and it’s why major airlines have been loving the lower cost of oil recently.
All four of the airlines that reported today — Southwest (LUV), United (UAL), JetBlue (JBLU) and American (AAL) — were able to report significantly lower costs per gallon of fuel purchased. American came in the lowest at $2.97 per gallon, followed by Southwest at $2.99, United at $3.02 and JetBlue at $3.05. In the third quarter of last year, fuel prices for the four airlines were between $3.03 and $3.14. These costs are unhedged.
Lower fuel prices obviously mean higher operating margins, which likely contributed to the increased operating income all four airlines saw. Southwest earned $382 million, up from $241 million last year. JetBlue brought in $164, an increase from $152. United posted earnings of $1.1 billion, its best quarter ever, and American ended up at $1.2 billion, also a record.
With fuel prices in constant flux, though, executives are understandably cautious.
“We’re obviously happy with the recent decline in fuel prices and expect to benefit from it,” said JetBlue CFO Mark Powers in the company’s conference call. “That said, fuel remains our largest expense and its price is clearly volatile.”