As you’ll know by now, the price of Brent Crude oil dropped under US$29 a barrel earlier this week, making it the lowest prices prices have been since 2003.

This is obviously bad news for a number of Australian oil shares like Origin Energy Ltd (ASX: ORG)Santos Ltd (ASX: STO), and Woodside Petroleum Limited (ASX: WPL).

It also impacts smaller producers Drillsearch Energy Limited (ASX: DLS)Senex Energy Ltd (ASX: SXY), and Beach Energy Ltd (ASX: BPT).

But, every cloud does have a silver lining!

For the airline industry, jet fuel represents one of the largest expense items along with other non-fuel costs such as airport charges, flight crew costs and airplane maintenance.

Airline carriers sign purchase contracts with oil refinery operators, which refine oil into jet fuel. Oil is the main component in the production of jet fuel, so the price of oil and the price of jet fuel are positively correlated.

As the price of oil declines, so does the price of jet fuel.

The extent to which the declining fuel cost affects profitability in the airline industry depends on the proportion of fuel cost in the total airline industry’s revenues. When there’s a pass-through of fuel cost savings to the airline industry, even a small decline in jet fuel costs results in significant profit margin improvements. This is good news for ASX-listed airline shares.

So, what’s been happening with jet fuel prices?

Below is a chart of the Jet Fuel Monthly Price – Australian Dollar per Gallon. The chart shows the fall in jet fuel prices from $2.18 in December 2014 to $1.49 in December 2015, that’s a drop of 31.58%:

nGIWp[1]

(Source: indexmundi.com)

With lower oil prices positively impacting the share price of ASX-listed airlines, investors will be now be considering investment in airline shares.

I thought this might be a good time to do a quick performance review of 3 of our ASX-listed airline shares, Qantas Airways Limited (ASX: QAN), Virgin Australia Holdings Limited (ASX: VAH), and Air New Zealand Limited (ASX: AIZ). Here’s some data from the most recent relevant periods.

Revenue Growth – low

Company Revenue Growth %
1 Air New Zealand Limited (ASX: AIZ) 5.5
2 Qantas Airways Limited (ASX: QAN) 2.5
3 Virgin Australia Holdings Limited (ASX: VAH) -3.3

Operating Margins – less than 10%

Company Operating Margin %
1 Air New Zealand Limited (ASX: AIZ) 9.32
2 Qantas Airways Limited (ASX: QAN) 6.65
3 Virgin Australia Holdings Limited (ASX: VAH) -3.34

Net Margins – thin

Company Net Margin %
1 Air New Zealand Limited (ASX: AIZ) 5.53
2 Qantas Airways Limited (ASX: QAN) 4.64
3 Virgin Australia Holdings Limited (ASX: VAH) -2.46

Return on Equity – good for the top 2

  Company Return on Equity %
1 Qantas Airways Limited (ASX: QAN) 22.96
2 Air New Zealand Limited (ASX: AIZ) 14.75
3 Virgin Australia Holdings Limited (ASX: VAH) -10.54

Price-to Earnings Ratio – good value for the top 2

Company P/E
1 Qantas Airways Limited (ASX: QAN) 15.91
2 Air New Zealand Limited (ASX: AIZ) 11.1
3 Virgin Australia Holdings Limited (ASX: VAH) N/A

Dividend yield – good for the top 1

Company Dividend Yield % (TTM)
1 Air New Zealand Limited (ASX: AIZ) 5.2
2 Qantas Airways Limited (ASX: QAN) 0
3 Virgin Australia Holdings Limited (ASX: VAH) 0

So, there you have it! A quick performance review of 3 of our ASX listed airline shares. I can’t help thinking, when I look at these numbers, just how thin the margins are in this capital intensive and highly competitive industry.

When I think about airline shares, I’m always reminded by Ben Graham, the father of value investing theory, who said decades ago that airline stocks were bad news for investors. But human nature keeps people from listening!

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Motley Fool contributor John Hopkins has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.