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Fuel Prices To Kill Off Airlines Soon?  
User currently offlineUdo From , joined Dec 1969, posts, RR:
Posted (9 years 11 months 2 weeks 2 days ago) and read 2484 times:

Over the last days oil prices have reached new record heights, for the first time hitting 46 USD per barrel. Several airlines have already announced to increase ticket prices. Most carriers still remain calm, claiming to cut costs elsewhere.

I haven't been much into aviation fuel issues yet, so I'm wondering when it really starts to become critical for the airline business in total. Can anyone give some figures how fuel prices affect most carriers' cost structures?

Will the oil price madness start to kill off some airlines soon? How will the low cost carriers be affected?



Regards
Udo

16 replies: All unread, jump to last
 
User currently offlineKim777fan From United States of America, joined Aug 2004, 510 posts, RR: 1
Reply 1, posted (9 years 11 months 2 weeks 2 days ago) and read 2466 times:

It's already been an issue for those airlines with problems to begin with.

The low-cost carriers will face costs that aren't quite as low.


User currently offlineAirframeAS From United States of America, joined Feb 2004, 14150 posts, RR: 24
Reply 2, posted (9 years 11 months 2 weeks 1 day 23 hours ago) and read 2423 times:

WN has already put a cap on its fuel expenses, from what Ive heard.


A Safe Flight Begins With Quality Maintenance On The Ground.
User currently offlineRadelow From United States of America, joined Jul 2004, 426 posts, RR: 3
Reply 3, posted (9 years 11 months 2 weeks 1 day 23 hours ago) and read 2410 times:

The smart airlines have hedged fuel expenses. Southwest is one good example.

**EDIT**

I should clarify as some people might not know what a hedge is. Airlines can buy contracts for fuel on the open market at a set price that they can use to buy fuel at a later time. Airlines, such as Southwest, knowing what was coming with the Iraq war and such have hedged against this and bought futures contracts for fuel. As such between Jan 1 and March 31 Southwest actually saved $64 million on fuel. The airlines who did NOT buy futures contracts are the ones that are worried.

Mark

[Edited 2004-08-14 01:52:04]

User currently offlineDAYFL From United States of America, joined Apr 2004, 127 posts, RR: 0
Reply 4, posted (9 years 11 months 2 weeks 1 day 22 hours ago) and read 2379 times:

The airlines need to get togther and raise ticket prices and quit playing around. Raising ticket prices 10 to 20 dollars will not scare people off to other airlines that don't raise fares. There are limited seats available so really there is no where for anybody to go.

User currently offlineFDH From Canada, joined Sep 2001, 102 posts, RR: 0
Reply 5, posted (9 years 11 months 2 weeks 1 day 21 hours ago) and read 2312 times:

Well, one way or the other, someone has to pay for oil price increases, and usually the impact goes all the way down the chain to the end customers, i.e. the passengers. So either some airlines go out of business (with less competition and less seats, prices would go up) or the ticket prices generally go up.

FDH


User currently offlineUA777222 From United States of America, joined Dec 2003, 3348 posts, RR: 11
Reply 6, posted (9 years 11 months 2 weeks 1 day 21 hours ago) and read 2303 times:

DAYFL,

With gas at $2.30 here $10 or $20 will make a big difference. The topic should read "Fule Prices To Kill Off Passangers". I think the airlines are waiting to bite the bullet b/c the fear of asking for something and then the next guy offering a little bit less thus causing lower pax. numbers.

UA777222



"It wasn't raining when Noah built the ark."
User currently offlineBoeing767-300 From Australia, joined Sep 2001, 659 posts, RR: 0
Reply 7, posted (9 years 11 months 2 weeks 1 day 21 hours ago) and read 2291 times:

Remember the Oil Shocks of the early seventies. What was parked up very quickly was the 747s of many operators.

I believe we have seen the last of cheap oil and this current problem will only likely get worse not better.
A smaller more fuel efficient aircraft like 7E7/777/A330/A340 is always going to be more efficient than larger planes like 747/A380 especially is capacity/loadings are not maximised. Many carriers are/have already down sized from 747 to 777/A340 already.

A380 is already having weight issues and is currently structurally engineered for stretches and may well have issues reaching promised performance specifications ( like 741/A346 etc)

My bet is the future will depend upon the smaller more fuel efficient planes like the 7E7/A32x/737NGe7!!in the future.

"No one ever went out of business operating an aircraft too small" but certainly plenty got into trouble operating one too big!!!

There is a market for A380 but limited and the success will come down to actual loading and more importantly fare yields. There is no use filling them up with low yield fares. 747 has always been in this category and to a certain extent the market fragmentation of the Atlantic along with the LCC revolution along with business technology for meetings have ultimately reduce the business class type yield. The hub to hub 747 was gradually replaced by the 767 point to point once the range was available and the superior economics of the long range twin.

This is not an A v B thread but a belief that oil prices will have an ever increasing effect on airlines. There are interesting times ahead.



User currently offlineSrbmod From , joined Dec 1969, posts, RR:
Reply 8, posted (9 years 11 months 2 weeks 1 day 8 hours ago) and read 2181 times:

This rise in fuel prices is going to affect some of the more financially troubled airlines, like United, US Airways, and Delta, who have not been able to hedge as much of their fuel (or none at all) costs as airlines in less financial troubles. When you've got vendors wanting cash upfront for their services that they used to bill you for, that's when you know you're in financial troubles. Some airlines are not able to hedge fuel because the suppliers fear that those airlines won't be able to pay for the fuel when the bill comes.

The rise in fuel prices over the last nearly four years also came at a time when the industry began the downward trend in its' cycle. The rise in fuel costs was one of the reasons why National (N7) filed for CH. 11, and affected the bottomline at a number of carriers. Some of the smaller carriers that folded in the aftermath of 9/11 were already hurting at the time of the attacks because of the rise in fuel prices and the downturn in traffic even before 9/11. A few of these carriers were already in their death spirals, and 9/11 put the final nail in their coffin. Some of the larger airlines were still flush with cash from the heady days of the late 1990s, when the loads were high as were the profits, so they were able to hedge a good bit of their fuel costs. It was the smaller airlines that were having trouble with hedging fuel costs. Airlines like AirTran and Frontier were only able to hedge a small percentage of their fuel costs, and with the introduction of newer a/c, those fuel costs savings helped in the long run. Imagine what kind of financial straits airlines like AirTran and Frontier would be without those newer, more fuel efficient a/c.

Look to see older a/c types like the 737-200 and 767-200 to slowly be pulled out of some airlines' fleets due to the higher fuel costs. I would even venture to say that some older MD-80s could find their way out as well. And I doubt Northwest will pull too many DC-9s out of service, as they've seemed to found a balance between the fuel costs and the costs of replacing those a/c.


User currently offlineMcGoose From Sweden, joined Aug 2004, 37 posts, RR: 0
Reply 9, posted (9 years 11 months 2 weeks 1 day 7 hours ago) and read 2146 times:

What can/should the airlines do to actually reduce their fuel-costs? Is there anything that can be done without changing entire fleets? The airlines sitting with relatively new fleets are definitely the winners right now.

User currently offlineLeelaw From , joined Dec 1969, posts, RR:
Reply 10, posted (9 years 11 months 2 weeks 1 day 7 hours ago) and read 2120 times:

Adjusted for inflation, petroleum prices still haven't reached the levels during the two price shocks in the seventies, which in current dollars would be approximately $55 per barrel. As always those air carriers which are nimble and efficient, or government subsidized will be the survivors.

User currently offlineRadelow From United States of America, joined Jul 2004, 426 posts, RR: 3
Reply 11, posted (9 years 11 months 1 week 6 days 18 hours ago) and read 1975 times:

I read somewhere that it costs, in Saudi Arabia, approximately $1.50 to $2.00 per barrel to produce oil. Supply & Demand is a bitch sometimes.

Mark


User currently offlineStevenUhl777 From , joined Dec 1969, posts, RR:
Reply 12, posted (9 years 11 months 1 week 6 days 17 hours ago) and read 1951 times:

The airlines need to get togther and raise ticket prices

Nope. Can't be done. This would be considered collusion, and the anti-trust division of the D.O.J. would breathe so far down each participating airline's neck so far it wouldn't be funny. If fuel costs don't break them, the DOJ fines would come close.

Now, if the D.O.J. were somehow convinced to allow ALL airlines to raise prices to cover fuel expenses only, all by the same amount, then that would be very helpful. However, the Bush administration (or the Kerry administration) would never go for that.


User currently offlineFriendlySkies From United States of America, joined Aug 2004, 4105 posts, RR: 5
Reply 13, posted (9 years 11 months 1 week 6 days 17 hours ago) and read 1932 times:

The airlines need to get togther and raise ticket prices

Nope. Can't be done. This would be considered collusion, and the anti-trust division of the D.O.J. would breathe so far down each participating airline's neck so far it wouldn't be funny. If fuel costs don't break them, the DOJ fines would come close.


Isn't it funny how the government always seems to work against us when we need it most? Well, seems that way in the US anyway. Wonder what the White House will say when all the airlines fail because there is either no regulation or too much regulation...


User currently offlineAirframeAS From United States of America, joined Feb 2004, 14150 posts, RR: 24
Reply 14, posted (9 years 11 months 1 week 6 days 15 hours ago) and read 1869 times:

This would be considered collusion, and the anti-trust division of the D.O.J. would breathe so far down each participating airline's neck so far it wouldn't be funny.

First, Im assuming that D.O.J. stands for Department of Justice. Secondly, what does the Dept. of Justice have to do with anti-trust crap and fuel surcharges?? I dont see the connection. Please explain this a bit more to me. Thirdly, what does the Dept. of Justice have to do with pricing of tickets on each carrier? The last time I checked, there are no gov't owned carriers here in the U.S.

I just dont see how the Dept. of Justice has to do with how airlines operate (surcharges, ticket prices, etc.) with the exception of merging with another carrier to become one company.



A Safe Flight Begins With Quality Maintenance On The Ground.
User currently offlineFriendlySkies From United States of America, joined Aug 2004, 4105 posts, RR: 5
Reply 15, posted (9 years 11 months 1 week 6 days 15 hours ago) and read 1848 times:

I'm not sure who is in charge (perhaps the FAA?), but there are regulations against collaboration among airlines. Something that has to do with protecting pax I'm sure, so that all airlines can't unanimously agree to never charge below $1000 USD per ticket on any route, or something like that. However, in two distinct cases I can think of off hand, these regulations are very painful to airlines and also pax, as they have to put up with the result of airline suffering (namely, delays, price increase, or fewer flights in some cases). These two situations are, as mentioned above, not being able to counter rising fuel costs by raising fares across the board, and also the major problem taking place at ORD. By letting airlines (UA and AA especially) compare schedules at ORD during peak times, they can work together to reduce delays. But NOOOOOOOOO! If we let UA and AA work together, they will raise prices and make flying horrible for everyone! Give me a break...like I said, the government tends to hurt us when we need it most.

[Edited 2004-08-16 09:19:17]

User currently offlineJoni From , joined Dec 1969, posts, RR:
Reply 16, posted (9 years 11 months 1 week 6 days 15 hours ago) and read 1821 times:


As a rule, larger airplanes are more fuel-efficient than smaller ones. Therefore if and when fuel prices climb, the hub-and-spoke model with large planes will benefit at the expense of point-to-point and high frequency models.

(that was a simplification, but the point should be clear enough)


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