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Low Oil Prices Drive Record Profits for U.S. Airlines

According to a U.S. Department of Transportation report, U.S. airlines raked in a profit of $25.6 billion last year, a 241 percent increase from 2014, largely thanks to depressed oil prices.

But it wasn’t just extra profit—it was mostly due to significant savings as the drop in oil prices saw U.S. airlines spend some $27 billion on fuel in 2015, 38 percent less than in 2014. Fuel prices averaged 35 percent lower in 2015 than the previous year.

For the 25 airlines with scheduled passenger service, total operating revenue last year was slightly lower at $168.9 billion, down $169.3 billion in 2014.

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Lower oil prices have allowed airlines to expand and add new routes. The resulting increase in competition has ended up putting downward pressure on fares. So far, that pressure has really resulted in much good news for travelers, as airlines haven’t yet started passing these savings along to the consumer. Last year, airfares were only slightly lower than the previous year.

Maybe next year will be better for the traveler. After all, airlines are now locking in cheap oil for the next few years.

Reuters reports that some of the largest airlines are stepping up their hedging programs in earnest for the first time since oil prices started their downward slump in mid-2014. In early April, several airlines secured hedges for oil at low prices for 2017, 2018, and even 2019, although the exact companies were not disclosed.

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That comes after several airline companies – including Southwest and United Continental Holdings – hedged oil prices last summer after prices hit up to $60 per barrel. It wasn’t a great move because prices then nose-dived once again.

But with crude oil hovering at $40 today—and predictions that it could dip below for the rest of the year--most airlines see very little room on the downside. Right now, they appear to be hustling to secure several years’ worth of oil supplies at cheap prices.

By Charles Kennedy of Oilprice.com

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