Plunging oil prices are saving airlines US$7 billion ($8.9 billion) this year on jet fuel - and the leader of one of the big three airline alliances says this is helping profitability in an industry where margins are notoriously thin.
Star Alliance chief executive Mark Schwab said although there was regional variation, especially in parts of Europe and Asia, airlines were doing well.
"Generally the industry is in a better place now than it has been for quite some time," Schwab said during a visit to Auckland.
Fuel prices are as much as 23 per cent lower than a year ago and the industry total bill for the year is expected to be US$123 billion ($157.3 billion), according to the latest International Air Transport Association jet fuel index.
"We're living in this moment right now where energy prices are right down. If it holds on for a while now then airlines should do quite well," said Schwab, whose Star Alliance has 27 airline members, including Air New Zealand.
Routes that were not viable when fuel prices were at their peak were now coming back into contention.
"I wouldn't describe it as windfall, it's still about sustainable returns on investment. For airlines to be able to renew fleet and their very high costs of capital it does have to be sustainable in the long term. You can't rely on a couple of good years to make things work for you."
Qantas and Virgin say they are on the way to turning around huge losses this year, mainly as a tough capacity war comes to an end but partly because of falling fuel costs.
Qantas chief executive Alan Joyce said the fall in oil prices would help his airline save about A$20 million ($21.9 million) over the last two months of this year, compared with a A$250 million blowout last year.
And China Southern Airlines president and chief executive Tan Wangeng said his airline was also benefiting from low fuel costs and had been able to cut domestic surcharges. International fares would be be subject to competitive pressure, he said.
In the 12 months to the end of September, United States airlines saved US$1.6 billion on jet fuel. That - and carefully managing capacity to ensure the number of flights falls just short of demand - helped them post a 5.7 per cent profit margin in the first three quarters of this year.
By managing capacity, those who want to fly will pay a premium to do so and airlines are selling a record 85.1 per cent of their domestic seats.
Airlines in the US are on the largest jet-buying spree in the history of aviation, ordering more than 10,000 new planes, with those orders for new, fuel efficient planes.
A temporary drop in oil prices shouldn't slow that process. New jets last 15 to 20 years and the buying is driven by cheap credit almost as much as high oil prices.
Schwab said established European carriers were facing hot competition from Middle Eastern airlines at the top end and a growing number of low-cost operators at the other end of the market.
They were reinventing themselves, he said.
"They're refining their market propositions. Everyone is looking at their cost structures - it has to be a focus for everything they do every day."
What are the three main airline alliances?
Star Alliance, OneWorld and SkyTeam.
How do they work?
Airlines can offer arrangements which allow airlines to accept the others' tickets and cover baggage transfers and liability, codeshare flights, the ability to earn and redeem frequent flyer miles on each others' flights and reciprocal lounge access. Alliance airlines also aim to be in the same terminals at major airports and are collaborating more on building and running lounges.
Can airlines form relationships outside their alliance group?
Yes, Air New Zealand (Star Alliance) has an agreement with Cathay Pacific (Oneworld), Qantas (Oneworld) has a deep commercial agreement with Emirates (which traditionally eschews airline groupings and partnerships). Airline alliances take a pragmatic approach - if they don't have a presence or a home carrier in a certain country they have the flexibility to work with whichever airline makes commercial sense.
What's the next move by the Star Alliance?
It is negotiating with carriers in Brazil to extend its reach in Latin America.