US airlines made stingy by years of higher jet fuel costs will send a low price windfall straight to their bottom lines, chief executives said today.
Major air carriers reported jet fuel prices averaging $2.98/USG in the third quarter, 8¢/USG lower than the same quarter of 2013. They forecast prices they pay in the fourth quarter could average as low as $2.70/USG.
It was a sharp reversal for an industry that has long bemoaned high fuel prices. The price drop contributed to record profits at American Airlines, Southwest Airlines and United.
But six months of lower fuel costs would not reverse plans to use capacity cuts and fuel-efficient aircraft to reduce consumption, along with hedging programs to reduce volatility.
"We've been in this industry long enough to know that could turn around in a hurry," American Airlines chief financial officer Derek Kerr said during a quarterly earnings call.
Benchmark jet fuel prices assessed on the Colonial pipeline fell 8pc over the course of the third quarter, and have fallen 22pc from a 2014 peak set in February to a nearly four-year low yesterday.
Airline fuel consumption increased slightly in the third quarter, averaging 774mn USG for the five largest airlines, up by 5mn USG from the same quarter of 2013.
Delta Air Lines reported the lowest average price of the quarter, at $2.90/USG, compared to $2.97/USG. The company attributed an estimated 2¢/USG to a profitable quarter of operations at its 185,000 b/d refinery in Trainer, Pennsylvania. The company's refining subsidiary produces both jet fuel and refined products it trades for jet fuel in other markets.
Airlines operating more traditional hedging operations reported receiving in about 80pc of the benefit from lower physical prices. Fuel prices broke out of a long-running range, but it was not yet clear companies would need to overhaul hedging portfolios in response, United Airlines chief financial officer John Rainey said.
"I think we're fairly early on this," Rainey said. "We will look to see if it stabilizes and a new trading band develops, and our hedge structure will respond to that."
American Airlines, which operates an unhedged fuel program, reported a 5¢/USG decrease in average prices from the same quarter of 2013, to $2.98/USG. It expects fourth quarter prices paid to plummet to an average $2.56/USG to $2.61/USG.
The industry remained hesitant to assume lower prices would continue beyond the fourth quarter.
"It flipped around in one quarter and could flip around again," Southwest Airlines chief executive Gary Kelly said.
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