Fasten Your Seat Belts, Profits Are Descending Down the Drain

It’s no secret that prices have sky-rocketed at the pump, but do you ever wonder how higher oil prices are affecting the travel industry, whether the mode of transportation be on land, air or sea?

Consider the following scenario: You plan on traveling a far distance for Labor Day weekend on a flight or on a cruise ship, but in the months to follow oil prices shoot up by 20%. How do you think this will affect the profits of the companies who own the plane or ship in which you are traveling? As you may have guessed, the airline or cruise ship will be missing out on some profitability.

When a transportation company sets the price for a customer ticket, whether it be for a Megasbus ticket from Pittsburgh to New York or an airline ticket from New York to London, they have to take into account the expenses that need covered in order to turn a profit.

These companies need to consider expenses such as employees, maintenance upkeep/ repairs and finally, they need to consider what they will spend on fuel. The recent rally in oil prices paired with the strength of the U.S. dollar are a “double negative for cruise stocks,” Morgan Stanley wrote. It’s no wonder why Carnival Cruise Lines profits are forecasted to be 6% less for 2018 and 11% less for 2019.

According to The International Air Transport Association (IATA), Airline profits are forecasted to drop by a whopping 12% in 2018, given that jet fuel is expected to rise in price by about 25% on the year. According to usatoday.com, jet fuel accounts for approximately 30% of an airlines total spend.

So, how long will it be until we could see ticket prices start to increase significantly? According to Alexandre de Juniac, CEO of the IATA, traveling on an airplane will be much more expensive if/when crude prices go above $70 per barrel. So, if you’re someone who booked a flight, cruise or bus ticket far in advance for an upcoming trip, you may have just saved yourself a good bit of money.

What else in the news today:

  • American Petroleum Statistics will be released at 4:30 PM tonight
  • The spread between WTI and Brent crude is the largest since mid-2015 at $11 per barrel

Sources:

https://www.cnbc.com/2018/06/04/crude-oils-bullish-sign-the-growing-spread-between-wti-and-brent.html

https://www.usatoday.com/story/money/energy/2018/02/06/ticket-prices-airlines-warn-higher-oil-prices-raise-airfares/310395002/

http://money.cnn.com/2018/06/04/investing/iata-airline-profits-oil/index.html

https://www.thestreet.com/investing/stocks/carnival-stock-sinks-as-morgan-stanley-sees-year-end-slowdown-for-cruise-sector-14610878

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