Airline profits soar into the stratosphere as fuel prices fall

If the U.S. airline industry had to pick a theme song these days, the old classic We're in the Money might be a good choice. First-quarter earnings reports are now in for all big U.S. carriers. Each announced impressive profits.

American Airlines led the pack, posting a whopping $932 million quarterly profit last week. "We are pleased to report record first-quarter profits, exceeding the prior record set just last year," said CEO Doug Parker.

The tune was much the same at airline headquarters around the country the past two weeks. Like American, every big U.S. airline took their turn in the first-quarter profit parade.

Among the notable results: Delta Air Lines reported a net profit of $746 million; Chicago-based United, $508 million; Dallas-based Southwest, $453 million; and Seattle-based Alaska Air, $149 million to name a few.

And there were still more impressive results. Allegiant raked in $108 million while "ultra low-cost" rival Spirit pulled in $69 million. JetBlue earned $137 million.

The industrywide boom can't be attributed a single factor, but there is one that's hard to ignore: lower fuel prices.

U.S. airlines paid sharply less for jet fuel in the first quarter of 2015. Average prices per gallon hovered around $2, a third of what it was for many airlines during the same period last year.

American alone saw its fuel bill dip 43%, boosting its bottom line by more than $1.3 billion. Other airlines also reaped the benefits of cheaper fuel during the first quarter, cumulatively saving billions across the industry.

Despite the skyrocketing profits, don't expect ticket prices to drop any time soon.

In part, that's because the airlines' first-quarter earnings reported showed demand for air travel remains strong. And airlines have continued their recent trend of successfully shifting capacity throughout their networks, keeping planes full by trying to deploy the bulk of their capacity where they are seeing the highest demand.

"There is no economic incentive for an airline to lower its fares [right now]," says Henry Harteveldt, chief analyst at Atmosphere Research Group in San Francisco. "A retailer wouldn't cut the price of umbrellas in the middle of a thunderstorm, so why would an airline facing strong demand cut fares?"

Hoping those bag fees might go away, or the return of the free meal in coach? Also not likely, says Harteveldt.

"Just because they're profitable, that doesn't mean that they're going to go back to providing amenities that they removed over the past few years," he said.

Indeed, airline executives have taken a generally more conservative approach to running their operations. That's continued even now that they're taking in record profits. Top airline brass have weathered a handful of boom-and-bust cycles during the past two decades, and they remain aware that there's no telling how long the good times will last. Or how quickly new and unexpected storm clouds could blow in.

"We don't know how long cheap oil will be around. Airlines want to make sure they don't get carried away," said Harteveldt. "Airlines are going to take a very conservative approach toward this cash."

So instead of seeing the return of free bags, airlines are more likely to hoard the cash. They'll use it to reduce existing debt or to satisfy shareholders.

But, even without lower fares or a reduction in fees, there is some upside for passengers. Many U.S. airlines have finally started to make major improvements to terminal buildings, airplanes and lounges. American, Delta, United and Southwest are among the carriers to have announced major efforts during the past two years.

Those investments aren't cheap, and as Harteveldt says, ultimately, "airlines that make sustained profits are better for passengers."

Jeremy Dwyer-Lindgren is a Seattle-based photojournalist and aviation writer and a contributor to Ben Mutzabaugh's Today in the Sky blog. You also can follow Jeremy on Twitter at @photoJDL.