TEAM PROJECT PAPAER
OIL PRICES AND DIFFERENT BUSINESSES
With each passing year, oil seems to play an even greater role in the global economy. It wasn't until 1857 that the first commercial oil well was drilled in Romania. While much of the early demand for oil was for kerosene and oil lamps.
The price of oil and inflation are often seen as being connected in a cause and effect relationship. As oil prices move up or down, inflation follows in the same direction. The reason why this happens is that oil is a major input in the economy - it is used in critical activities such as fueling transportation and heating homes - and if input costs rise, so should the cost of end products. For example, if the price of oil rises, then it will cost more to make plastic, and a plastics company will then pass on some or all of this cost to the consumer, which raises prices and thus inflation.
For Airlines
Any reduction in the number one expense for an industry is going to result in stronger revenues. The size of the oil drop means that more of that revenue will end up as profits, rewarding airline stocks and their investors. The market has already been pricing this in as the airline stocks have risen as oil falls. Declining oil prices can also help the airline industry in a more indirect way. Lower prices at the pump leave more dollars in consumers’ pockets for other expenditures, like travel. In this case, however, demand for flights was already strong, so it’s unclear whether those marginal dollars will prompt more vacations than would have happened anyway.
One is that the rally is in advance of the actual cost savings as airlines are still fueling out of futures contracts set before the big decline. It will be three to six months before the real savings kick in. When they do, the market will already be recalculating values based on the cost of oil at that time.
The other point of caution is that high fuel prices have enforced a lot of discipline on the airline industry that
With each passing year, oil seems to play an even greater role in the global economy. It wasn't until 1857 that the first commercial oil well was drilled in Romania. While much of the early demand for oil was for kerosene and oil lamps.
The price of oil and inflation are often seen as being connected in a cause and effect relationship. As oil prices move up or down, inflation follows in the same direction. The reason why this happens is that oil is a major input in the economy - it is used in critical activities such as fueling transportation and heating homes - and if input costs rise, so should the cost of end products. For example, if the price of oil rises, then it will cost more to make plastic, and a plastics company will then pass on some or all of this cost to the consumer, which raises prices and thus inflation.
For Airlines
Any reduction in the number one expense for an industry is going to result in stronger revenues. The size of the oil drop means that more of that revenue will end up as profits, rewarding airline stocks and their investors. The market has already been pricing this in as the airline stocks have risen as oil falls. Declining oil prices can also help the airline industry in a more indirect way. Lower prices at the pump leave more dollars in consumers’ pockets for other expenditures, like travel. In this case, however, demand for flights was already strong, so it’s unclear whether those marginal dollars will prompt more vacations than would have happened anyway.
One is that the rally is in advance of the actual cost savings as airlines are still fueling out of futures contracts set before the big decline. It will be three to six months before the real savings kick in. When they do, the market will already be recalculating values based on the cost of oil at that time.
The other point of caution is that high fuel prices have enforced a lot of discipline on the airline industry that