Oil is now trading in the low $60s. I never thought I would say that. Due to this summer’s peak in oil prices, the airlines were doing everything possible to reduct fuel costs. What happens now?
I think that overall, lots of the efforts will stay in place. For example, many airlines have adopted the practice of taxiing on only one engine. While this move saves less money than it did before, it still saves money, and plus this is an inexpensive way to save fuel. But I still think many of the ways used to save fuel that were more expensive will remain. Blended winglets cost money to install, but they still save fuel. The only thing that has changed is how now an airline will recoup the cost in fuel savings. Still, if oil prices continue to fall a bit less airlines might be convinced to do the change.
The one thing that I see affected by the drop, though, is fleet planning changes. I wonder if United still thinks it is worthwhile to remove all of its 737-300s and -500s from the fleet, and if it is possible at all for them to reverse that decision.
But the lower prices can possible affect future supply if they continue to fall. For example, extracting oil from oil shale and oil sands is more expensive and requires a more expensive oil price to become economically viable. While the oil price hasn’t hit these floors (I think), it’s getting a bit closer to those levels. My concern is that if oil prices continue to decline, exploration will decrease.
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Ultimately I don’t think the strategies of US airlines will change any. When you think about it, the airlines never get a break. They go from unsustainable oil prices to an economy which is making less and less people fly, let alone full fare business travelers. I think serious capacity reductions are required, even with the lower oil prices.