How Are US Air Fares Correlated To Crude Oil Prices?
The average air fare in the US and crude oil prices are positively correlated, with a correlation of close to 80%. By this we imply that if crude oil prices drop by say 1%, the average air fare in the domestic US markets are likely to decline by 0.8%. The major reason behind this relationship, is the fact that jet fuel cost (which is derived from crude oil) accounts for more than one-third of an airline’s total operating expenses. Thus, if this cost comes down due to crude oil prices falling over a sustained period of time, the airlines may feel pressured to pass on the cost saving to its passengers by lowering their air fares. However, there can be other factors that also influence fares, such as the over or under supply of capacity/seats in the industry, extreme weather conditions, or an economic slowdown, which may alter this relationship to some extent. In the table below, we show how the plummeting oil prices over the last few quarters has impacted the average air fare in the US markets.
Have more questions about JetBlue Corporation (NYSE:JBLU)? See the links below:
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for JetBlue Corporation
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