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The CEO of American Airlines says travel demand is strong, explaining why airline profits are up even as fares have fallen because of cheaper jet fuel.
Fuel was American’s biggest expense, accounting for nearly one-third of all expenses, until oil prices began plunging last year.
“If it gets cut in half, that’s a pretty big change to your economic model,” CEO Doug Parker said Tuesday.
Through the first half of 2015, fuel savings at parent American Airlines Group Inc. were $2.2 billion, or 40 percent, compared with the same period last year. That’s helped the company earn almost as much in the first six months of this year as it did in all of 2014 despite a modest 3 percent increase in revenue. Analysts expect American to soar past last year’s profits.
Parker said travel demand is strong in the U.S. and weaker on international routes, especially in Brazil, a key market for American.
Airlines were criticized last year when they didn’t immediately cut fares as fuel prices plummeted. Parker said the airlines didn’t lower fares right away because nobody knew whether the oil slump would last.
When fuel prices remained lower for a long enough time, airlines added flights which led to lower fares, he told reporters at a company event Tuesday. According to trade group Airlines for America, average fares on the seven largest U.S. airlines were 4.8 percent lower in July than a year earlier.
Still, “You add it all up, profits are way up,” Parker said on MSNBC. “We’re in pretty good supply-demand balance,” he added.
Shares of American Airlines Group rose 35 cents to close at $42.64. Despite a slight rebound in the last three weeks, they are down 20 percent in 2015.