Even with occasional jumps in oil prices, fuel costs have fallen more than $40 a barrel in recent months, and that drop has emboldened the nation's airlines with hopes of recovering from what has been a financial nightmare.
One analyst has even predicted that airlines could make a stunning reversal and post record profits next year thanks to a favorable mix of lower fuel expenses and higher fares.
But other analysts believe that the respite from sky-high fuel costs could be short-lived.
If the economy worsens, "airlines are going to be right back in the tank" with fewer passengers and empty seats, said Richard Gritta, a professor of finance and transportation at the University of Portland in Oregon. "It doesn't matter if oil prices go down."
The meltdown of the financial markets is expected to trickle down to corporate travel budgets, leading to fewer business trips, and leisure travelers on Main Street are likely to buckle down and put trips on hold. Adding to the dismal outlook is the worsening global economy, which is likely to hurt international travel.
Despite the lower fuel prices and slumping demand, higher fares and fees for passengers are not likely to budge, analysts and airline officials said. Moreover, with low demand, airlines could ground more planes on top of the more than 500 that already are being taken out of service in the U.S. As a result, passengers can expect planes to be even more crowded.
Still, the sharp drop in fuel prices has taken the industry by surprise.
"Things have changed quite a bit in just two short months," Beverly Goulet, the treasurer for American Airlines, said at a New York analysts conference after oil prices fell below $100 a barrel last week.
"The good news is that the change in oil prices has worked in our favor over this period, but the questions about the steady-state price of fuel and the direction of the economy are as yet unanswered," Goulet said.
Some airline executives were cautiously optimistic after the price of crude oil fell by more than $50 in the last two months to $97 a barrel Sept. 18 before heading back up and hovering above $100 this week. Oil futures closed Friday at $106.89 a barrel, down $1.13.
With higher fares and additional fees, airlines are wringing more revenue out of each passenger.
