Downstream segment of oil and gas not the only sector benefiting from the oil price crash
American Airlines expects to save $4.35 billion on fuel
Virtually every transportation division is cashing in on low fuel prices, spanning from the typical American commuter to massive international sea tanker routes.
In December, AAA estimated American drivers would save as much as $75 billion in lower gas prices over the course of 2015, amounting to about $550 per household. Drivers are capitalizing on the discount; the Department of Transportation said more than 1.54 trillion miles were logged in the first half of 2015, the most on record. Car sales are red hot, as August 2015’s total of 17.8 million sold units marked the highest in ten years.
Aside from benefits consumers notice firsthand, there are other benefits for entire industries that can go generally unnoticed.
Freight by Sea
Fuel prices are so low that sea tankers are opting to avoid the Suez Canal and sail around all of Africa, logging an extra 4,000 miles in the process. The lengthy detour, first reported by Bloomberg, explains there are advantages for traders to keep cargoes at sea. The revised route also offers many additional trade destinations along the way and keeps ships employed for longer, resulting in lower fleet supply.
The boosted revenues from lower fuel costs has tipped off an intense bidding war between airlines vying for customers. The Bureau of Labor Statistics reports airline fares fell by 5.6% in July, the steepest decline in 20 years. Airlines have also increased their seating capacity by 3.4% in the last 12 months, leading to additional benefits on the consumer side. The Associated Press claims some buyers have locked in round-trip tickets from Boston to Chicago for $80. Orbitz says flight fares for Labor Day weekend are 11% lower than last year.
A Deutsche Bank analyst told The Dallas Morning News that the bank may upwardly revise its earnings estimates on airlines, based solely off of increased margins from gasoline prices. Southwest Airlines believes it will realize an additional $1.2 billion in profits this year, while American Airlines offset its $168 million revenue drop in Q1’15 with a $932 million profit aided by low fuel prices. American and its related airlines spent $1.86 billion on fuel in the first three months of 2015, down from $3.22 billion for the same period in 2014.
In a conference call discussing quarterly results, American Airlines management said it expects its year-over-year consolidated fuel expense will improve by approximately $4.35 billion.