Airlines' fuel savings unlikely to benefit fliers

Airline stocks are soaring as jet fuel prices plummet, but don't expect those savings to be passed on to fliers in the form of lower fares.

Investors are betting on fatter airline profits as a result of OPEC's decision to keep its production levels steady in the face of a world oil surplus. That's expected to push the price of jet fuel and other petroleum products even lower in the weeks ahead.

"OPEC just played Santa Claus to the world's airlines,'' says Henry Harteveldt, travel industry analyst with Atmosphere Research Group.

American Airlines said recently it expects to pay $2.56 to $2.61 a gallon for its mainline jet fuel this quarter compared with $3.10 in the first quarter. Its potential savings is at least $422 million.

The current dip in the cost of fuel might not have an immediate impact on every airline's bottom line. Some carriers hedge against surprise hikes in fuel costs by buying it in advance at a set price. That's helpful if prices later soar, but not so much when prices dip.

Fuel tends to be an airline's single biggest expense, and when it becomes more expensive, it is often the main reason carriers give for hiking fares.

But with the traveling public currently itching to fly, and keeping many planes filled, carriers have little incentive to pass along any fuel savings to consumers in the form of cheaper tickets, industry watchers say.

"I don't expect airlines to squander these cuts on large-scale fare cuts,'' says Harteveldt. "The financial pain of the 2008-2009 economic crisis remains fresh in many airline executives' minds. As a result, I believe much of the savings from lower jet fuel prices will flow directly to airlines' bottom lines.''

Airlines, which have seen sometimes record-breaking profits in recent quarters, saw their share prices rocket Friday, a day after OPEC's meeting.

United (UAL) finished up 8.18% to $61.23 in trading Friday. American Airlines (AAL) was up 7.92% to $48.53. Delta (DAL) was up 5.49% to $46.67, while JetBlue (JBLU) was up 7.57% to $14.63 a share.

Rick Seaney, of FareCompare.com, agreed that consumers shouldn't expect fares to drop, at least not in the near future. "I would expect some international fuel surcharges to come down before any domestic price drops,'' he says.

Harteveldt says that any fare cuts would cover tickets that offer travelers the least flexibility if their plans change and that they will probably be short-term deals for vacations booked well in advance.