AMR Corporation (AAMRQ), Delta Air Lines, Inc. (DAL): Will Airlines Prosper During the Busy Summer Season?

Oil prices on the rise
Unfortunately for the airlines, while the demand picture is beginning to brighten, fuel prices may become a headwind to costs again. While the price for Brent crude spent most of the spring in a trading range near $100 per barrel, it has jumped significantly in the past few weeks, surpassing $108 on Wednesday.

Brent Crude Oil Spot Price, data by YCharts

The Energy Information Administration’s weekly oil report on Wednesday showed that U.S. crude stockpiles dropped by roughly 10 million barrels last week, similar to the previous week’s drop. This data could provide fuel for further increases in oil prices in the next few weeks. The $8 per barrel price increase we have seen so far equates to $0.19 a gallon.

United, Delta, and the hypothetical merged American-US Airways Group Inc (NYSE:LCC) will each use approximately 4 billion gallons of jet fuel this year. This recent oil price increase could therefore have a big impact on industry profitability in the second half of 2013 if it is not reversed.

A guessing game
The major airlines are starting to see improvement in unit revenue trends. If this continues throughout the summer peak season, it should support solid growth in industry earnings this year. However, oil prices remain a wild card. While U.S. oil production has been steadily increasing for the past few years, it has not put much of a damper on oil prices. If oil prices continue to rise, airlines could see much of their projected profit gains wiped away.

The article Will Airlines Prosper During the Busy Summer Season? originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Adam Levine-Weinberg is short shares of United Continental Holdings (NYSE:UAL) and long Sep 2013 $33 Puts on United Continental Holdings. The Motley Fool recommends Southwest Airlines.

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