Cheap oil: Better for airline passengers or shareholders?

Americans probably haven't noticed much of a change in airline ticket prices since oil began to plummet. They shouldn't hold their breath.

That's because airline investors are more likely to be the main beneficiaries for quite some time. With benchmark West Texas Intermediate crude at a five-year low near $55 a barrel, many airlines have seen their costs begin to fall significantly in the last few months. Fuel accounts for a hefty 35 percent or more of operating expenses, according to industry analysts, meaning the savings can add up fast.

In past cycles, airlines were often quick to lower ticket prices in response to lower oil prices. A big reason was that oil itself was tumbling amid weak economic demand. In tough times, airlines felt pressure to offer better deals to fill up their planes.


Robert Nickelsberg | Getty Images

There are several reasons why that's unlikely to happen this time—at least not anytime soon. First, lower oil prices appear to be a result of supply increases rather than weak demand. That dynamic means many consumers still have enough to spend on tickets, especially in the U.S. where economic growth is gradually improving.

Just as important, the industry is in much better shape these days. Planes in the U.S. usually fill about 85 percent of their seats, up from around 70 to 75 percent in the early 2000s, according to Stifel Nicolaus analyst Joseph DeNardi. The percentage is even higher on most flights given that the average is weighed down by a small number of flights such as red-eye routes.

Read MoreWhy oil is down by half, what it means for you

Why is that important? If customers are already willing to fill planes at current ticket prices, there's no immediate need to offer better deals. That is, of course, unless major industry players decide to engage in a price war to win market share.

But that also looks less likely these days than in the past. For one, there are simply fewer major carriers. The last few years have seen mergers of Delta Air Lines with Northwest Airlines, Continental Airlines with United (now United Continental Holdings), and American Airlines with US Airways.

There's also reason to believe that airlines have become more focused on cash flow after enduring so much pain in various crises and bankruptcies over the years. "All of them are focused on returning capital to shareholders and improving margins as opposed to gaining market share," DeNardi said.

It's also important to remember that airlines have learned to live with elevated oil prices and will be wary of a rebound to higher levels. In a speech last week, Tony Tyler of the Geneva-based International Air Transport Association pointed out that airlines have operated with oil prices above $100 a barrel since 2011. The association assumes oil prices will average $85 a barrel in 2015, when global industry profits will reach $25 billion, up from $19.1 billion in this year.

To be fair, cheaper fuel should eventually flow to consumers, and some airlines are more likely to cut ticket prices than others. Discount carrier Spirit Airlines said last week that it had seen some fare "compression" as a result of willingness to trade lower fuel prices for lower fares. But Spirit operates at an extreme end of the pricing scale and is the only airline that has made such remarks.

Read MoreDelta sees $1.7B benefit from lower fuel costs

One way to bet on airlines winning from cheaper oil is shares of American Airlines. American doesn't hedge fuel costs, so it should gain more than most if the industry can be disciplined about ticket prices. It also has a high percentage of its flights in the domestic market, where demand has been very healthy. The company is also in the process of integrating with US Airways, a move that investors will reward if it can navigate the next year without major hiccups. American didn't respond to a request for comment from CNBC DIgital.

While American's stock has nearly doubled in 2014, most of that gain has apparently been due to analyst earnings revisions rather than a multiple expansion. The stock still trades at a reasonable multiple of 10.5 times consensus 2014 earnings. For American, cheap oil may help pump up profits for some time.