How Discounters (And the Weather) are Making it Tough for Big Airlines

It’s been a tough summer for many of the big airlines. 

The value of a key stock index that comprises the major airlines fell by 7.5%, and in aggregate lost close to $10 billion of market value in August, according to a recent report from Bloomberg.

The major airlines include American, Delta, United, JetBlue and Southwest.

Bad for investors, good for consumers?

Big airlines have suffered a double whammy of economic forces–some of them prompted by the weather.

These air carriers are under increasing pressure from smaller airlines that have cut the cost of tickets on a wide range of routes. In June, for example, the ultra-low cost airline Frontier announced it would more than double the number of routes it flies in the U.S., with teaser rates for some one-way tickets as low as $20.

To keep up, major airlines have been cutting ticket prices. The average domestic airline ticket departing from Los Angeles International, for example, fell by 5%, according to the Bureau of Transportation Statistics.

Adding to the pressure recently, the price of jet fuel has also increased since Hurricane Harvey hit Houston in late August. The storm reduced by 4.4 million barrels, or 24% of the oil refining capacity, according to reports.

Economic challenges for the airlines are likely to continue.

Delta, Spirit Airlines, and JetBlue all reportedly cut their revenue forecasts for the coming months.

Top Takeaways:

• It’s been a tough few months for the airline industry.
• Competition from low-cost air carriers has forced major airlines to cut prices for domestic air travel.
• Hurricane Harvey has taken about a quarter of oil production offline, and that’s led to increases in fuel costs for major carriers.
• These factors have all cut into airline profits.
• While airlines compete on cost, consumers are benefitting from cheaper tickets.

Read more: Hurricane Harvey: How a Big Storm Affects the Market