Much as the meteoric rise of jet fuel prices dramatically changed the equation of airline business models and caused unprecedented demand for more-efficient aircraft, the recent steep fall has the potential to change the equation again. While short-term financial benefits for many airlines are undisputed, there is increasing concern that the new shift may prove a mixed blessing for airlines and aircraft manufacturers over time.

Estimates by rating agency Moody’s show what a hugely positive financial impact the lower fuel prices will have on the airline industry’s costs. Moody’s analysts believe airlines globally will spend around $70 billion less on fuel in 2015 than in 2014, equivalent to a reduction of one-third. But given that the once-favorable hedging contracts are binding and scheduled to be in place for some time and that the U.S. dollar has strengthened against several important currencies, the net effect will be more like $35 billion. Moody’s believes the seven U.S. airlines it is rating will end up paying $15 billion less for fuel this year.

But executives at many airlines insist that while low fuel prices are changing balance sheets, big-picture strategy—notably fleet planning and capacity—remains largely unaffected for now. In the U.S. United Airlines this year will take delivery of two used Boeing 737-700s—aircraft acquired due in part to their more favorable economics thanks to fuel prices of around $50 per barrel, about 50% lower than six months ago. Beyond that, however, the carrier says its fleet plans are not being reworked to cash in on cheaper gas.

“These are assets that we fly for 25 to 30 years,” Chief Revenue Officer Jim Compton says. “If we are so fortunate that fuel prices remain at this level for years to come, we might adjust our view on what fuel prices we use when we make these fleet investment decisions. But for right now, we are still assuming the same fuel prices that we’ve used or seen over the last few years, which is $120-125 [per barrel].”

Delta Air Lines, which stands to save $2 billion from lower fuel costs in 2015, net of its hedges, has not changed plans due to the price drop. The carrier’s move to phase out its 16 747-400s from 2014-17 remains on track. “Planning with a low fuel price will only disappoint,” CEO Richard Anderson says. “And planning with a high fuel price, if you end up being wrong and the fuel price is lower, you will be pleased.”

On the other side of the Atlantic, the picture is similar. Lufthansa says it will spend around €900 million ($10.2 million) less on fuel in 2015 than it did last year when fuel costs amounted to €6.7 billion. The airline is sticking to its policy of keeping capacity flat in terms of aircraft units and growing only by increasing seating capacity.

An even more substantial effect on bottom lines will only be seen when the current fuel-hedging contracts expire and are replaced with ones that mirror current market prices. Low-cost carrier Ryanair is among the airlines that, from today’s point of view, hedged at the wrong time—at prices that turned out to be too high. Moody’s warns that unhedged airlines might use the opportunity to wage fare wars in an attempt to boost market share. However, since there are few unhedged airlines in Europe, the potential of widespread near-term fare reductions does not loom large.

There are significant exceptions that can change company fortunes and distort current market dynamics: The drop in fuel prices will, at least in the short term, widen the cost gap between European and most U.S. airlines on the one side and Gulf carriers on the other. Emirates is completely unhedged, thus is one of the largest airlines to see immediate benefits. Etihad Airways ended its hedging program in late 2014 when prices already had declined significantly.

Other majors that are not hedged include American Airlines, Air China, China Southern Airlines and China Eastern Airlines. Many other Asian carriers have little hedging so are enjoying immediate benefits. Air Asia and Asiana Airlines hedged approximately 10% of their requirements in 2015, Japan Airlines (JAL) is at 20%, All Nippon Airways (ANA) at 45% and Cathay Pacific Airways at 50%, according to French bank BNP Paribas.

One question confronting all airlines is how to continue or resume hedging, given the current price levels.

Beyond the obvious near-term positive impact on balance sheets, future consequences may not be as obvious. Brian Pearce, chief economist at the International Air Transport Association, believes the impact of lower fuel costs is “more complex than people say.” He does not go along with the prediction that a drop in fuel prices necessarily translates into an equivalent increase in airline profits. In fact, Pearce argues, because of several different factors that will crop up in the next 1-2 years, the bottom-line benefit for airlines will be much lower.

He even wonders whether cheap oil is actually that good for the industry when all the follow-on ramifications are taken into account. For starters, Pearce points out, “profits have increased with rising fuel” over the past few years. That airlines would be profitable given the massive increase in fuel costs over and above the historic trend, was unexpected. In fact, many analysts have predicted record numbers of bankruptcies and consolidations.

Although there have been market exits, the number of actual bankruptcies has been fairly low and consolidations have occurred in different regions at different paces, but not in record numbers.

What seems to be the major factor for airlines’ financial performance improvement in recent years has been capacity control. Carriers simply could not afford to continue to fly all the marginal routes they had put in place—in spite of ongoing losses—for “strategic reasons” to improve network quality. Improved quality (meaning more destinations) takes a backseat when in survival mode.

Pearce is concerned that some of the discipline may soon be lost, although in general he believes the “mindset change among airline CEOs is probably here to stay.” Some airlines may continue to use older aircraft rather than retiring them. And he expects a “delay in some of the industry restructuring that has been happening in Europe. Some players had been expected to exit, but will not.” Also, it is still relatively easy to start a new airline, particularly if business plans are based on lower fuel costs.

Therefore it will be “all the more difficult for airlines” to continue to post profits at the current levels, Pearce argues.

Moody’s believes airlines will use “this windfall for debt reduction, aircraft purchases and shareholder returns, rather than significantly grow their fleets to wage market-share battles.” But it also believes that the ability to increase yields on a global basis will be “limited” due to the reduced price of oil.

In fact, airlines are being pressured to waive the fuel surcharges they introduced when prices first started to rise. Many carriers are citing fuel hedges for the lag in eliminating surcharges, but this defense will not work for much longer if low fuel prices continue.

Some airlines are aiming at a soft landing by starting to absorb canceled fuel surcharges into higher base fares, thereby removing an increasingly unpopular fee without taking much of a revenue hit.

In the Asia-Pacific region in particular, actions on fuel surcharges have varied greatly. AirAsia, Cebu Pacific and Philippine Airlines (PAL) have dropped the surcharge, while several others such as JAL, ANA, Singapore Airlines and Cathay Pacific have reduced it.

Some carriers have ditched these fees as a result of regulatory directives. For example, on Jan. 8 the Philippines Civil Aeronautics Board revoked airlines’ authority to add a separate fuel surcharge. This affected 27 carriers, not just locally based operators such as PAL and Cebu but also a number of foreign airlines serving the Philippines.

Australia’s two major carriers—Qantas Airways and Virgin Australia Airlines—have eliminated fuel surcharges, although the effect on total ticket prices will be minimal. Qantas will raise its base fares to compensate for the loss.

Lufthansa has already redefined its surcharge to include airport and security fees to counter demands for reduced overall fares.

“Airlines will behave in a rational way if they are under threat,” says Adam Pilarski, senior vice president of the Avitas consulting firm. But now that the most immediate threat has disappeared, he is convinced they will start lowering fares, thus weakening their own position.

“Fuel prices were way too high and should not have been,” Pilarski says. He has bucked the mainstream, predicting this fall in prices far ahead of other analysts. Now the big question for him is: Will [prices] stay or hover at this low rate? If so (and that still includes prices of $80-90 per barrel as compared to the current level of below $50) the development would represent a “permanent structural shift that has tremendous impact.”

The effect of the new fuel price environment could extend well beyond airline economics per se, to have a strong influence on aircraft production, even though Airbus and Boeing deny the correlation for now. “People mistakenly believed [fuel prices] will be up forever,” Pilarski says. Therefore they were trying to get access to as many fuel-efficient aircraft as possible as a kind of a life insurance—the only way to be protected in relative terms vis-a-vis the competition and, in effect, “an expensive form of hedging.” That is what caused the strong demand for and launch of Airbus’s A320neo and A330neo and Boeing’s 737 MAX. Now the main argument for ordering these aircraft becomes less important. “Obviously you don’t have an immediate impact, it will take time for reality to sink in,” he says.

But in consequence, Pilarski warns that there is “still a huge overhang” in orders. He notes that both Airbus and Boeing hold orders for twice as many aircraft as they have produced for two consecutive years, and he predicts the ratio will be “below one” in 2015.

“From an aerospace and defense industry perspective, falling oil prices and the increasingly likely ‘lower for longer’ outlook elevate the risk of aircraft order deferral and/or cancellation as the value proposition for airline carriers in terms of reduced cost of ownership for new/next-generation equipment relative to existing/current-generation equipment is markedly reduced,” says widely followed Moody’s analyst Russell Solomon.

“The massive orderbooks continue to mitigate this rising risk, nonetheless, particularly in that a significant component is earmarked for emerging market growth, which is clearly not without risk itself, but we believe is less exposed to oil price declines than developed markets, for which fleet replacement can more easily be delayed if jet fuel costs continue to decline and stay relatively low,” he says.

OEMs such as Airbus Group, Boeing and others could see more pressure on the orderbooks sooner than they expected. “The lingering issue of the OEMs having to fill their skylines for both narrowbody and widebody programs, as new variants are scheduled to be introduced over the next few years, will likely prove more challenging in the current environment,” Solomon says, “with margins likely coming under increasing [beyond normal course] pressure as last-off-the-line models are sold.”

Pilarski has no doubt that there has been an order bubble. “The question is how will we deflate the bubble? With a sharp needle or will there be slow leaking?” In the sharp-needle scenario, airlines would cancel a great number of existing orders. If the bubble only has a small leak, the industry may simply have to endure a few years with considerably fewer orders. “It does not have to become a disaster,” Pilarski concedes.

In The Airline Monitor, Ed Greenslet agrees and disagrees. He believes the number of orders for new aircraft will likely come down. But, he says, “There is no evidence in history” of a correlation between oil prices and orders. If orders do go down it is because “they must drop to an average over time. They have been at a peak for four years; it’s just the way the beast works—in cycles.”

Greenslet points out that the price of fuel almost tripled between 2004-14, but deliveries increased by 67% over the same time. And there were no new aircraft types available that would have been more fuel efficient than those in service before the rise in fuel. So while new orders may fall at a time of plummeting oil prices, he argues that there is no link between the two. To him, it is just a coincidence.

Airlines will become more profitable in the short term, Greenslet avers, and fares will be lowered when the current hedging contracts that bind them to fuel prices higher than the current market level expire. “The airlines will bank it in the short term, but then will use [the cash] to build market share or build a business. This industry has a long history of irrational behavior.”

But would it be irrational to just take advantage of the situation and lease some good, mid-price, mid-age aircraft? “We take it as a given that fuel prices in the current range make it more attractive to retain, and acquire, 10-15-year-old airplanes instead of growing the fleet with new types,” Greenslet concedes. However, he sees “two problems with that strategy.” Most of the new aircraft on order are intended for growth, not replacement. And there “is no way the used aircraft market could supply the more than 1,000 new single-aisle types now being delivered each year, particularly if the airlines are at the same time retaining the older types they have.” Second, before a significant part of the airline industry gives up on orders, it would have to be convinced that fuel stays low for 10 years or so. “The fear of being on the wrong side of the fuel price trends, when significantly better products are available, is a risk most airlines would probably wish to avoid.”

Swiss bank UBS, by contrast, warns there could be a negative effect for carriers. UBS has calculated that at current fuel prices, 10-15-year-old used narrowbodies are 10-15% more cost-effective than new current-generation aircraft and will be 5-10% cheaper to own and operate than next-generation aircraft such as the A320neo or 737 MAX. “However, we think the main impact of $2 [fuel is that the probability of very high $4+ jet fuel that the airlines have had to guard against and plan for at $3 is now much lower. At $4 the 10-15-year-old aircraft would no longer be economical compared with new models, UBS analysts argue.

Therefore UBS sees “the potential for airlines to extend the lives of older aircraft and increase their utilization is benefiting the engine manufacturers, aerospace aftermarket and lessors with significant near-term lease expirations.” The analysts warn that airlines could “begin to look to defer current-generation aircraft on order if fuel remains at these lower levels for 6-12 months.” UBS believes Boeing is more at risk than Airbus because “it has a much larger gap to try to bridge to its next-generation models.”

But lessors do not (yet) see a major change in airline behavior, even though industry profitability is improving across the board. Aengus Kelly, CEO of leasing giant AerCap, says his company was able to extend leases for seven Airbus A340s and two Boeing 747-400s by several more years; it had been expected to scrap the aircraft. He cautions that airlines are only extending contracts by a finite time until the next major engine and airframe overhauls. At that point, keeping the aircraft will still be uneconomical in spite of the much lower direct operating costs, Kelly argues, noting: “Airlines are doing this at the margin, there is not a big capacity change. The aircraft are still on the way out.”