Most commercial airline companies declined precipitously after the terrorist events of 9/11 as consumers flew less for business and leisure. As a result of this shock, the industry faced increasing consolidation and key bankruptcies (including United, NW, and Delta) as the sector struggled to regain its financial footing. Consolidation is beneficial in two ways for airline companies, as it typically reduces redundant operating costs and raises revenues through higher fares.

Compounding the issues around declining consumer demands was the concurrent rise in oil prices, which typically constitutes 30% of an airline's operating cost and is the major expense for commercial airline companies. Some companies such as Southwest had the foresight to lock in low fuel prices using hedging strategies, but most airlines, including the two largest by revenue passenger miles--American Airlines and United Airlines-have no hedging strategies in the foreseeable future and will suffer the most if oil prices continue to rise.

Companies that are poised to benefit from an increase in commercial air travel include Internet travel agencies such as Expedia and Priceline, which generate most of their business from airline ticket purchases. In addition, complementary travel services such as hospitality and rental car companies will also benefit. Hilton, Starwood and Marriottt are hotel companies that have high exposure to airline travelers, especially lucrative business fliers who spend about 5 times more on a plane fare compared to leisure travelers. Hertz is a rental car company that would benefit tremendously from an increase in air travel, as 80% of its rentals come from airport based locations.


  • 1 Drivers
    • 1.1 Consolidation
    • 1.2 Spotlight on Oil Prices
    • 1.3 Business vs. Leisure Travel
    • 1.4 Domestic vs. International Travel
  • 2 Companies Affected by an Increase in Airline Travel


After the events of 9/11, the domestic commercial airline industry went into a precipitous freefall, prompting consolidation of several airlines and bankruptcies of others. Elimination of airlines, through consolidation or bankruptcy, benefit both revenues--through higher fares--and costs by eliminating redundant expenses and routes. Additional terrorist attacks or declines in the overall domestic economy could accelerate consolidation as weaker airlines get acquired by financially stronger ones or become insolvent.

Airlines worldwide have also sought to share costs by creating partnerships or alliances. Through these agreements, airlines can share facilities and operational costs (e.g., maintenance facilities, sales offices) and negotiate volume discounts on large purchases. Passengers benefit from lower prices (due to lower expenses) as well as optimized routes and pooled loyalty rewards, especially in regards to international travel. The three major global alliances are:

Worldwide Airline Alliances
AlliancePassengers per Year (MM)% RPM Share Approx. (2005)Key U.S. Airlines
Star Alliance41325%United, US Airways
SkyTeam37320%Northwest, Delta, Continental
One World32015%American

Spotlight on Oil Prices

Jet fuel is a key cost for airline operations, typically constituting around 30% of an airline's costs. Jet fuel is extremely correlated with spot oil prices which have risen significantly over the past several years. On the flip side, the stock prices of domestic airlines tends to be highly negatively correlated to jet fuel prices, indicating the sensitivity of this historically low-margin business to fuel expenses.

Some airlines have utilized hedges to lock in the price of fuel and hence insulate themselves from oil price volatility.

  • Southwest was perhaps the most forward-looking of airlines, and has hedged significant portions of its fuel expenses through 2010 at various prices per barrel below the current market rate. The company will reap benefits compared to other airlines if oil prices continue to rise or remain at current levels. On the other hand, if prices fall below Southwest's hedging levels, they will be at a disadvantage to other airlines.

Business vs. Leisure Travel

Business travel is important to the commercial airline industry for two major reasons. First, it commands a much higher average ticket cost, approximately 5 times higher than the average leisure fare. Second, business travel is less elastic changes in macro-economic trends than leisure travel, which may be considered a form of luxury.

  • In the past 24 months, leisure fares have dropped slightly, ranging from $110 to $100
  • In the same time frame, business fares have increased significantly, from around $350 to $500

Domestic vs. International Travel

International travel accounts for about one-third of all traffic and capacity for the major carriers. Comparing 2020 year to date to the same time period in 2019, these major carriers saw international travel increase faster than domestic travel.. Growth in domestic travel has been soaked up in large part by the regional discount carriers such as Southwest

Companies Affected by an Increase in Airline Travel

  • Southwest, JetBlue, and AirTran are discount airlines that would benefit from an increase in domestic regional travel. Southwest dominates travel in many cities in the Western U.S., including Las Vegas, the Northern and Southern California and Phoenix. Jet Blue is growing its presence primarily around New York City. Air Tran has taken on Atlanta, the home of large carrier Delta.
  • Continental, United, and Northwest are major carriers that would benefit from the increase in airline travel, especially international. International travel generated approximately one-third of all traffic for major carriers in 2006 and 2007 year-to-date. These three carriers generated the highest share, with over 40% of traffic coming from international travelers.
  • Priceline and Expedia are Internet based travel services. Expedia is the leading Internet travel service with a 40% market share, nearly twice that of each of its nearest competitors. The majority of its business comes directly from airline travel purchases. Hence, an increase in airline travel--especially consumer--would be of benefit to this company. The company booked $5 billion of airline tickets in the first quarter of 2006. Priceline generated over 90% of its 2005 revenue from the U.S. and depends heavily on the airline industry. The top two airlines partnered with Priceline alone generated nearly half of all overall revenues in 2005.
  • Hilton, Marriot, and Starwood are hotel companies that have significant exposure to airline travelers, especially those flying for business. These companies would benefit from an increase in airline travel.
  • Choice Hotels International is a hospitality company with lower average room rates that caters towards the drive-to-travel segment. This company would benefit from an increase in driving as a substitution for leisure flying.
  • Hertz is a rental car company that would benefit from an increase in air travel. In 2006, Hertz generated about half of its revenues each from leisure and business travelers. The company is well-poised to benefit from airline travel especially, as 80% of its revenues come from airport-based locations.