Airlines are directly affected by fluctuating oil prices in the form of increased operating costs in fuel charges, less passenger disposable incomes and the result of increased competition caused by the Airline Deregulation Act of 1978.
Airlines saw annual revenue and operating costs grow from 1950 to 1970 as a result of more flights and a stable market environment. In 1973 the oil crisis, as a result of the Arab Oil Embargo, quadrupled crude oil prices.
Oil prices increased from 1974-1982. With more competition and less demand, operating costs soared and profit margins dwindled. Expanding airlines saw their rapid boom eclipsed by massive debt and unsustainable growth.
Oil remained a focus for airlines as American demand for gasoline expanded from 1985 to 2009. When oil reached an average annual all-time high of $92 a barrel, in 2008, passenger loads for all airlines were greatly reduced. Passengers were flying less as a result of less disposable income.
The airline industry will always be affected by the price of oil, because jet fuel is a product of the oil refining process. Fuel budgeting can reflect over 50 percent of airlines operating costs. Fluctuations in fuel prices are going to have a direct affect on the bottom line profitability of any airline.
Airlines imposed new checked baggage fees and fuel surcharges to particular destinations. Today, baggage fee revenues for all airlines average in the billions of dollars. These fees remain in effect, as airlines fear future oil price instabilities, in spite of passengers' negative reaction.
