Low oil prices can be bad for airlines - analyst

United States carriers such as American Airlines have bounced back from heavy losses.

A leading aviation analyst says the impact of low oil prices is bad in one way for airlines.

Executive chairman of the CAPA, Peter Harbison, said low fuel prices were dominating the way airlines were thinking and working. They were allowing airlines to keep older, less efficient aircraft in service.

Fuel prices have tumbled from more than US$100 a barrel in 2014 to sub-$60 levels for the past 18 months

Harbison told the New Zealand Aviation and Travel Summit in Auckland that airline operating costs had been reduced on average by 10 to 15 per cent.

''That makes a massive difference when you think the margins in the airline business, if they're lucky, are 10 per cent but on average about 3 or 4 per cent.''

However, it was a double edged sword.

''It's good and it's bad, there's a lot of pressure on airlines when oil's at $100 a barrel to get their businesses really tight,'' he said.

Airlines needed to constantly reduce costs to maintain profitability but when there was such a visible fall in variable costs this was more difficult.

"Suddenly you start making a $1 billion profit and it's hard to convince people that you need to cut,'' he said.

Many United States carriers had just emerged from bankruptcy protection but were now making big profits and faced pent-up employee demands.

''The pilots are really pushing up their salaries in the States, you get them up quickly but it's really hard to get them down,'' he said.

The International Air Transport Association's latest financial monitor says profitability has peaked.

''When it peaks you've got a reasonable idea of what's around the corner.''

Harbison said there was ''undoubtedly'' too much longhaul capacity in the market at the moment in Australasia, particularly with the presence of the Gulf carriers.

Emirates has 77 flights into Australia a week, and just under half that number into New Zealand, where Qatar Airways is due to begin services in February.

Looking a decade out, Harbison said this market would be dominated by low-cost carriers.

Those airlines, such as Malaysia-based AirAsia X, had operating costs at least half those of legacy carriers, he said.