One of the major input costs for airlines is fuel, and with oil prices hitting multi-year lows, airlines will subsequently start to see improved operating margins.  Further, the length at which oil prices have been subdued is significantly aiding airline company's top and bottom lines for at least Q4 2014, and Q1 2015.

As we wash away 2014 and enter into 2015, investors need to look at areas where commodities, and other input costs are inexpensive, and for the first time in many years, the airline industry is getting a reprieve from high input costs.  Further, with the increased oil output volume from the U.S., it appears as though oil prices will be subdued for the near term.  Specifically, the most recent US oil inventory data posted just before the new year showed an increased supply in U.S crude stockpiles (rose 760,000 barrels), and saw stockpiles at the Cushing Oklahoma delivery point increase by 1.8 million barrels according to the American Petroleum Institute. 

Typically, the winter season sees the largest decline in U.S. oil inventory due to the cold weather, and the most recent report stating that there is an oversupply has caused oil prices to drop once again. According to the Energy Information Administration's (EIA) December Short-Term Energy Outlook, they “forecasts that Brent crude oil prices will average $68 per barrel (bbl) in 2015, with prices up to $5/bbl below the annual average early in the year.”  Further, the forecast for West Texas Intermediate (WTI) would average $63/bbl in 2015, according to the EIA.

If these average prices hold true, that would mean increasing margins, and declining costs for the airline industry throughout 2015.  Moreover, prices are expected to be lower in the first part of the year compared with the second part of the year.  Making the fourth quarter 2014, and the first quarter 2015 the time frame for this industry segment to see solid growth levels.