Today’s price for a barrel of crude oil ($26.64 per barrel) was last seen in December of 2001. Lifehouse had the hottest track on the radio dial, “Hanging by A Moment”. Ocean’s Eleven was lighting up the silver screen, and the world was beginning to recover from the terrorist attacks in September of that year.
Tank of Gas is Cheapest in 15 Years
Cheap oil is fantastic news for families pinching pennies at the pump and airline stocks have taken flight. In fact, 2015 is shaping up to be the most profitable year for the airline industry since deregulation. Beyond incredibly low aviation fuel prices, more Americans are traveling aboard crowded planes, with more than 87% seat occupancy becoming an industry average. This is up from 77% ten years ago. Combine more passengers on each flight with low fuel costs and a bunch of new “fees” charged to flyers, it’s looking like the aviation industry might have rounded the corner.
Delta Airlines (N:DAL) Gets New CEO
For Delta Airlines (DAL), record profits and cheap oil are only part of what’s bringing a season of change as they get ready to bring on a new CEO on May 2. The outgoing CEO, Richard H. Anderson, is a titan of the airline industry. He’s widely respected as the architect behind the merger of Delta and Northwest Airlines, which allowed the struggling airlines to climb out of the hole caused by the cratering airline industry post 9/11.
In an ironic turn of events, the former CEO of Northwest Airlines and current President of Delta Airlines, Ed Bastian, will assume the role of Chief Executive Officer of the nation’s second largest airline. A big airline can mean big problems, and Bastian will be inheriting a few at Delta (DAL). First is a brewing fight between the labor union that represents Delta’s pilots and corporate. Big profits mean it’s time for the labor pool that took it on the chin to help the airline survive rough headwinds to get some much needed pay and benefit enhancement.
Unfortunately, a drawn out labor fight may hurt the stock price and result in tougher economics for the Atlanta-based carrier when oil prices rise once more, and other rough patches cause operating expenses to rise. Balancing the needs of the pilots and flight attendants with the financial needs of investors will be a very challenging task.
Global Trade Benefits from Cheaper Oil, In Theory
For companies that trade internationally, like PepsiCo Inc (N:PEP) or Coca-Cola Company (N:KO), cheap oil means significantly lower distribution and logistical costs. Emerging markets become more cost-effective to serve and when combined with online invoicing tools like Due.com, businesses of all shapes and sizes can expand to new territories.
If shipping companies like FedEx (N:FDX) and United Parcel Service Inc (N:UPS) agree to lower their shipping rates as a result of cheap oil, it’s likely that Amazon (O:AMZN) will be able to sweeten the deal even more for Prime members. Although, they are already known for taking a loss in the short-term to gain customer loyalty and market share over the long term.