North American airline earnings will climb 73 percent to $19 billion in 2015 from $11 billion this year, bolstered by lower jet fuel costs, a Bank of America Merrill Lynch analyst forecast.

Glenn Engel raised earnings estimates today for nine U.S. and two Canadian carriers as a result of the decline in prices for oil, which is refined into jet fuel. Airlines also will benefit as lower energy costs give consumers more discretionary income they may spend on travel, he said.

Earnings that match Engel’s forecasts would extend a turnaround among U.S. carriers that racked up $58 billion in losses from 2001 to 2009 before returning to profit in 2010. Executives at American Airlines Group Inc. and Delta Air Lines Inc. have said they expect to report record results this year.

“We continue to believe that the recent decline in jet fuel prices represents significant upside to airline EPS, if sustainable,” William Greene, a Morgan Stanley analyst, said today in a report to investors.

The Bloomberg U.S. Airline Index declined 2.3 percent at 1:45 p.m. in New York trading, as broader markets also fell on fewer Black Friday shoppers and weaker economic data in China. The index has climbed 68 percent this year, outpacing an 11 percent gain in the Standard & Poor’s 500 Index.

Oil prices fell to the lowest level since July 2009 after the Organization of Petroleum Exporting Countries failed to cut output on Nov. 27 in response to a glut in supply. Prices that have since rebounded remain down 31 percent this year.

Fuel Prices

Jet fuel for immediate delivery in New York harbor has tumbled 30 percent this year to $2.23 a gallon, its lowest price since December 2009. Even with the lower prices, fuel remains among the top costs for airlines.

American, the world’s largest carrier, spent $8.4 billion on fuel for jets in its primary fleet during the first nine months of this year. It was the largest single expense and accounted for about one-third of the airline’s operating costs.

Engel raised his ratings on JetBlue Airways Corp. and Air Canada to buy from underperform, saying airline shares don’t fully reflect oil prices remaining low longer. American and Hawaiian Holdings Inc. were changed to buy from neutral. The analyst reduced Delta to neutral from buy, and Alaska Air Group Inc. to underperform from buy, while raising his stock target price for each of those carriers.

The analyst said Delta’s hedges, or financial instruments designed to protect against price spikes, and profit sharing limit its benefit from lower fuel costs while Alaska was cut based on its market-share battle in Seattle with Delta.

Turn ‘Quickly’

Helane Becker, an airline analyst at Cowen & Co. in New York, is cautious in evaluating the effects of falling fuel prices.

“We think that can turn just as quickly so we haven’t really adjusted our estimates for next year,” Becker said in a phone interview.

Still, signs look strong that airline fares will remain intact, she said. In the past, lower fuel prices eventually led to a drop in fares because the underlying cause was a slowing economy. This time, the economy still seems robust and the drop in fuel costs is resulting from an oversupply, Becker said.

Airlines so far haven’t shown any sign of dropping ticket prices amid strong consumer demand, she said.

To contact the reporters on this story: Mary Schlangenstein in Dallas at; Michael Sasso in Atlanta at To contact the editors responsible for this story: Ed Dufner at Andrew Pollack, Bruce Rule.

Tags: earnings, fuel
Photo Credit: In this Tuesday, Nov. 29, 2011, file photo, a passenger walks through an American Airlines baggage claim area at O'Hare International Airport in Chicago. Nam Y. Huh / AP Photo