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What If The Price Of Oil Continues To Rise?  
User currently offlineFLY2LIM From United States of America, joined May 2004, 1184 posts, RR: 10
Posted (7 years 12 months 2 days 22 hours ago) and read 6043 times:

I was watching MSNBC yesterday (while running on the treadmill at the gym, puff, puff) and they said that, because of the unrest in the middle east and the rest of the world, Americans could be looking at 4 or 5 dollars per gallon for gasoline to fuel their cars, which would mean that the price of a barrel could be over $100 some day. This is speculation (by the experts, not by me), but it's the same speculation that often drives the price of oil.
So, what happens if we hit $100 per barrel of oil? What would that mean to the airlines? Aren't many of their fares already at a loss?
Any thoughts?

FLY2LIM


Faucett. La primera linea aerea del Peru.
61 replies: All unread, showing first 25:
 
User currently offlineFLY2LIM From United States of America, joined May 2004, 1184 posts, RR: 10
Reply 1, posted (7 years 12 months 2 days ago) and read 5952 times:

Wow, I started a thread about a relevant topic and the doomsayers at a.net didn't reply predicting doom and gloom to all the airlines?
Let me see if I can get some action now. I really believe that if the price of oil goes over 100 a barrel, some airlines may not be able to operate. What would happen to fares?

FLY2LIM



Faucett. La primera linea aerea del Peru.
User currently offlineBucky707 From United States of America, joined Aug 2000, 1028 posts, RR: 3
Reply 2, posted (7 years 12 months 2 days ago) and read 5937 times:

Quoting FLY2LIM (Reply 1):
What would happen to fares?

hmm, they would go up?


User currently offlineLetsgetwet From United States of America, joined Jul 2005, 609 posts, RR: 0
Reply 3, posted (7 years 12 months 2 days ago) and read 5892 times:

Fares would have to rise at the same rate. Flying would go back to the days when only the rich and priveleged could afford it. Many airlines, especially the LCC's will go under and the few that will survive will have to cater to the people with money.

User currently offlineDLPMMM From United States of America, joined Apr 2005, 3588 posts, RR: 10
Reply 4, posted (7 years 12 months 2 days ago) and read 5880 times:

Quoting Letsgetwet (Reply 3):
Fares would have to rise at the same rate. Flying would go back to the days when only the rich and priveleged could afford it. Many airlines, especially the LCC's will go under and the few that will survive will have to cater to the people with money.

At last, a bright side to rising oil prices! The end of the flying Greyhound busses.
 Smile


User currently offlineFoxDelta From Spain, joined Jun 2004, 126 posts, RR: 0
Reply 5, posted (7 years 12 months 1 day 23 hours ago) and read 5871 times:

Not much will happen... Ah yeah, some airlines will fold, but simply to be replaced with new ones with lower cost structures.

Cheers  twocents 


User currently offlineMandala499 From Indonesia, joined Aug 2001, 6751 posts, RR: 76
Reply 6, posted (7 years 12 months 1 day 23 hours ago) and read 5871 times:

I wish they'd stop this "fuel surcharge" and just slap up the fare...

Mandala499



When losing situational awareness, pray Cumulus Granitus isn't nearby !
User currently offlineLetsgetwet From United States of America, joined Jul 2005, 609 posts, RR: 0
Reply 7, posted (7 years 12 months 1 day 23 hours ago) and read 5835 times:

Quoting FoxDelta (Reply 5):
Not much will happen... Ah yeah, some airlines will fold, but simply to be replaced with new ones with lower cost structures.

Unless you can develop an engine that can use air as fuel, there is a limit to lowering cost structure. At $100/barrel oil, fares have to go much higher, unless you get volunteers from A.net as employees.


User currently offlineFLY2LIM From United States of America, joined May 2004, 1184 posts, RR: 10
Reply 8, posted (7 years 12 months 1 day 23 hours ago) and read 5822 times:

Quoting Letsgetwet (Reply 7):
Unless you can develop an engine that can use air as fuel, there is a limit to lowering cost structure. At $100/barrel oil, fares have to go much higher, unless you get volunteers from A.net as employees.

I find it so hard to believe that people think so casually about this subject. There are thousands of people who depend on air travel for business, for commerce, etc. There are companies like FedEx who would also have to raise prices. Not only would air travel be affected, a lot of people would be out of business because shipping costs would be so high, etc. Also, someone said that "a few" airlines would be out of business. I think it could cripple the entire system. What if NW, DL, UA disappeared from the map?

FLY2LIM



Faucett. La primera linea aerea del Peru.
User currently offlineTAN FLYR From United States of America, joined Aug 2000, 1903 posts, RR: 0
Reply 9, posted (7 years 12 months 1 day 23 hours ago) and read 5798 times:

At some point, several factors will come into play when oil would hit 85,90 or 100.00 per barrel.
1. Fuel substitutes..bio Jet-A of some sort
2.Less demand for all fuels..At 4.00 per gallon, there WILL be a decrease in consumption of motor fuels in the US.
3. Global economic slowdown will also cause decreased demand for petroleum products.
4. Increased supply..I am still a firm believer that when (not if) we find the political will to open a tiny patch of ANWR for drilling the psychological impact on the market is at least 10.00 per barrel.
Add to that increased Oil production from the Sands from Canada, Oil Shales from the western states some day soon, the law of new supplies usually come into play when the price gets high enough.

A challenge yet to be addressed in the US is still lack of refining capacity. Pemex is studing a 7th refinery in Mexico, the Saudi's are building several new ones as well projects in China, India and other locales.


User currently offlineMalpensaSFO From , joined Dec 1969, posts, RR:
Reply 10, posted (7 years 12 months 1 day 23 hours ago) and read 5798 times:

Quoting FLY2LIM (Thread starter):
So, what happens if we hit $100 per barrel of oil?

This may be ashot in the dark...

Fares go up?

Quoting FLY2LIM (Thread starter):
What would that mean to the airlines?

More passenegrs need to travel, more reasons to jack up the airfares =

MORE REVENUE


User currently offlineAtrude777 From United States of America, joined Aug 2003, 5692 posts, RR: 52
Reply 11, posted (7 years 12 months 1 day 22 hours ago) and read 5776 times:

Quoting DLPMMM (Reply 4):
At last, a bright side to rising oil prices! The end of the flying Greyhound busses.

Greyhound buses don't fly so wrong topic sorry!

Alex



Good things come to those who wait, better things come to those who go AFTER it!
User currently offlineRheinbote From Germany, joined May 2006, 1968 posts, RR: 52
Reply 12, posted (7 years 12 months 1 day 22 hours ago) and read 5735 times:

Quoting FLY2LIM (Thread starter):
So, what happens if we hit $100 per barrel of oil?

Synthetic fuel becomes economically viable at around $80 per barrel. Synthetic fuel can made by hydrating coal, which is abundant in Russia, China, the US and Europe, amongst others. I leave the rest to your imagination.


User currently offlineSeeTheWorld From United States of America, joined Dec 2005, 1325 posts, RR: 4
Reply 13, posted (7 years 12 months 1 day 22 hours ago) and read 5707 times:

Quoting Letsgetwet (Reply 3):
Fares would have to rise at the same rate. Flying would go back to the days when only the rich and priveleged could afford it. Many airlines, especially the LCC's will go under and the few that will survive will have to cater to the people with money.

There are a few legacy carriers that will fail before the successful LCCs do if oil continues to rise. You have to remember that the LCCs have much lower costs, and when oil goes up, it goes up for everyone (except those who have hedged, and the LCCs have hedged better than the legacy carriers, so it's a double whammy against some of them).


User currently offlinePlanesNTrains From United States of America, joined Feb 2005, 5442 posts, RR: 29
Reply 14, posted (7 years 12 months 1 day 21 hours ago) and read 5677 times:

Quoting TAN FLYR (Reply 9):
2.Less demand for all fuels..At 4.00 per gallon, there WILL be a decrease in consumption of motor fuels in the US.

I'm not sure how much that would help. I'm just going off second hand information, but I thought I've heard that the US consumes 25% of the worlds oil production. Of the US portion, only 7% goes towards filling automobile gas tanks. 7% of that 25% would mean that US cars consume about 1.75% of the worlds oil production.

Thus, if US auto consumption dropped 20% (a huge number), it would only dent the world consumption by about .35%. I'm sure China's airlines will eat that up soon enough  Smile.

I'd be more curious to know what choosing paper over plastic would do for the price of oil?  Smile

-Dave



Totes my goats!
User currently offlineLetsgetwet From United States of America, joined Jul 2005, 609 posts, RR: 0
Reply 15, posted (7 years 12 months 1 day 21 hours ago) and read 5651 times:

Quoting SeeTheWorld (Reply 13):
There are a few legacy carriers that will fail before the successful LCCs do if oil continues to rise. You have to remember that the LCCs have much lower costs, and when oil goes up, it goes up for everyone (except those who have hedged, and the LCCs have hedged better than the legacy carriers, so it's a double whammy against some of them

I agree that some legacy carriers will also fail. But if oil goes to $100/barrel and stays there, all the LCCs will fail because only wealthy people will be able to fly. Wealthy people will expect 1rst class service for high priced fares. Hedging will not help because it only takes the bumps out of an uphill climb.The world will become a much different place from how we know it. Get out your bicycles and forget about those island vacations!


User currently offlineANother From , joined Dec 1969, posts, RR:
Reply 16, posted (7 years 12 months 1 day 21 hours ago) and read 5645 times:

Actually Kerosene is allready at $93/bbl See; http://www.iata.org/whatwedo/economics/fuel_monitor/index.htm

User currently offlineEmSeeEye From United States of America, joined Jun 2006, 508 posts, RR: 0
Reply 17, posted (7 years 12 months 1 day 21 hours ago) and read 5639 times:

I wonder what the airlines thought in the 50's, 60's and 70's when they thought of future fuel / crude prices? However planes are still flying today. If crude prices are to rise and stay at that level on a very long term basis then inflation would have to compensate.

Hamburgers were just $.05 to $.10 each, gasoline was at $.10 a gallon at one time and the price of cars were below $4000.

Inflation at some point will catch up to us. Maybe quicker and sooner than later but its coming and inflation will be forced to balance the high cost of energy. Maybe some (or a lot) of companies including airlines may take a hard hit in the gut but it will have to happen in one way or another.

Just my  twocents 


User currently offlineER757 From Cayman Islands, joined May 2005, 2484 posts, RR: 7
Reply 18, posted (7 years 12 months 1 day 19 hours ago) and read 5559 times:

Quoting TAN FLYR (Reply 9):
4. Increased supply..I am still a firm believer that when (not if) we find the political will to open a tiny patch of ANWR for drilling the psychological impact on the market is at least 10.00 per barrel.
Add to that increased Oil production from the Sands from Canada, Oil Shales from the western states some day soon, the law of new supplies usually come into play when the price gets high enough.

Opening ANWR will not drop the price anywhere near $10/barrel. Most estimates of the available oil in ANWR is that it would equal 2% of the USA's oil needs. Hardly the amount that would cause such a precipitous drop as you suggest. Add to that the fact it will take a MINIMUM of 5 years to see a drop of that oil reach a refinery once approval is given and your scenario becomes a pipe dream (pun intended).
As for oil sands - VERY expensive to produce, won't do much to bring the cost down even if it will increase supply.


User currently offlineAirbusA6 From United Kingdom, joined Apr 2005, 2006 posts, RR: 0
Reply 19, posted (7 years 12 months 1 day 19 hours ago) and read 5559 times:

It will hasten the retirement of older types, for those airlines with money, the economics of more fuel efficient aircraft will outweigh the cost of purchasing them.

It will also make certain countries very rich too....



it's the bus to stansted (now renamed national express a4 to ruin my username)
User currently offlineJamesbuk From United Kingdom, joined May 2005, 3968 posts, RR: 4
Reply 20, posted (7 years 12 months 1 day 19 hours ago) and read 5541 times:

NW will retire there Dc-9's LOL.

The fact is airlines will want to survive so theyll keep raising there fares till either a new fuel alternative or people stop flying them and they go bust.

Rgds --James--



You cant have your cake and eat it... What the hells the point in having it then!!!
User currently offlineFoxDelta From Spain, joined Jun 2004, 126 posts, RR: 0
Reply 21, posted (7 years 12 months 1 day 19 hours ago) and read 5536 times:

Right now oil is basically twice as much as when the First Gulf War started. When the first Gulf War ended, it also ended the operations of some airlines. Eventually oil went down to about $12-14/barrel. New airlines started, those that already were there went to record profits... eventually oil raised its fares and the same thing happened: airlines folded, others survived, etc. It is HISTORY REPEATING!

Cheers  banghead 


User currently offlineLetsgetwet From United States of America, joined Jul 2005, 609 posts, RR: 0
Reply 22, posted (7 years 12 months 1 day 18 hours ago) and read 5499 times:

Quoting FoxDelta (Reply 21):
Right now oil is basically twice as much as when the First Gulf War started. When the first Gulf War ended, it also ended the operations of some airlines. Eventually oil went down to about $12-14/barrel. New airlines started, those that already were there went to record profits... eventually oil raised its fares and the same thing happened: airlines folded, others survived, etc. It is HISTORY REPEATING!

Cheers

IMHO we will never see oil under $30/barrel again.


User currently offlineB6JFKH81 From United States of America, joined Mar 2006, 2867 posts, RR: 7
Reply 23, posted (7 years 12 months 1 day 18 hours ago) and read 5474 times:

Car manufacturers are pumping out the newer engines that burn the newer fuel which is 85% non-petrolium based fuel (I think its called E85). Is this happening in the aviation industry? Imagine what a great boost it would be for the agricultural community to be able to fuel the cars and planes!!!!


"If you do not learn from history, you are doomed to repeat it"
User currently offlineBond007 From United States of America, joined Mar 2005, 5394 posts, RR: 8
Reply 24, posted (7 years 12 months 1 day 18 hours ago) and read 5458 times:

Quoting Letsgetwet (Reply 3):
Fares would have to rise at the same rate. Flying would go back to the days when only the rich and priveleged could afford it.



Quoting Letsgetwet (Reply 15):
But if oil goes to $100/barrel and stays there, all the LCCs will fail because only wealthy people will be able to fly.

OK, let's get real here for a moment.

Firstly, oil prices have never kept pace with inflation (as mentioned). If you look at historic oil prices adjusted for inflation you'll see.

Next, let's do some simple math, making lots of assumptions but hopefully making the point:

Fuel accounts for somewhere around 25% of total operating costs of an airline (see quarterly reports)....so...cost of oil today say $80/barrel. OK, it goes from $80/barrel to $100/barrel...a 25% increase. This makes a 6.5% increase an airline's total costs...correct me if I'm wrong.

So...my $250 fare now has to be increased to $267, and my $400 fare has to be raised to $425 to cover the increased cost of fuel.

I don't have to be a millionaire to buy my new ticket.

Now, did I miss something here??

...and that's assuming that the airlines aren't also cutting that other 75% of total costs.

Jimbo



I'd rather be on the ground wishing I was in the air, than in the air wishing I was on the ground!
25 Jetdeltamsy : You would see an enormous pull down of capacity. Thousands of mainline jets would be grounded. Only the most dense o/d routes would be operated; hub
26 Iowaman : $10/barrel does seem excessive, however the excess capacity is very small so a 2% increase in oil production for the U.S. would help. I hope you are
27 Letsgetwet : That 25% of operating cost was when oil was$40 -$50/barrel. Double that and you'll get a lot more than a 6.5% increase. When gas goes to $8/ gallon a
28 N844AA : Do you mean this or are you being facetious? Oh, probably about as many as do in Europe?
29 Bond007 : Well....I just looked at AAL 1Q 2006 Report. The average price of oil was around $67/Barrel over those 3 months. Fuel accounted for around 28% of AAL
30 Post contains links KarlB737 : Courtesy: Chicago Tribune Wake-up Call To U.S. On Oil? http://www.chicagotribune.com/busine...732960.story?coll=chi-business-hed FLY2LIM probably is
31 N844AA : Basically what'll happen is that the airlines will charge more to cover fuel costs, people will keep buying tickets because people have to fly, and af
32 Letsgetwet : Do you really believe that you can just keep cutting people 's wages, just so you can fly to your golf game?Most carriers are operating at no-frills
33 Letsgetwet : I agree that not all airlines will go under. But the average Joe is not going to be flying to his timeshare in Aruba. Flying will stop being the back
34 Bond007 : ..and where did I say this?? I said if there were NO other cost cuts, a $250 fare = $285. Do you really think the legacy airlines are running the mos
35 Post contains links BoomBoom : The Boyd Group has an article on their website: $80 Oil - Get Ready For The Brave New World http://www.aviationplanning.com/asrc1.htm[Edited 2006-07-1
36 Jetdeltamsy : I'm not kidding. When crude goes to $100 a barrel, it was almost certainly destroy the airline industry as we know it. The telecommunications busines
37 N844AA : I think you're absolutely right in almost everything you say, but I just can't agree with your conclusion. Look at the industry right now: a good chu
38 Letsgetwet : Could'nt have said it better. This is IF oil goes over $100/barrel AND stays there. (Not incinceivable)[Edited 2006-07-19 02:35:22]
39 Bond007 : ...and shouldn't have been there to start with! Jimbo
40 N844AA : That reminds me of a question I've always wondered about -- just what is the marginal cost of hauling an extra (say) 175 lbs 2500 miles?
41 Post contains images Bond007 : All I can tell you is that the revenue is half as much as if you'd charged him $399 Jimbo
42 Post contains images N844AA : I blame PEOPLExpress for this state of affairs
43 Peterinlisbon : I think that if it does suddenly get a lot worse, the airlines at risk would be Varig (probably going anyway), Alitalia, and perhaps some of the US ca
44 Letsgetwet : And where would you get that much ehanol? And how much would it cost?
45 Tsaord : Just off the top of my head and I know this sounds way out there, but does anyone thinkg in the future Airbus or Boeing would start some type of solar
46 Letsgetwet : You have the "Right" to go anywhere you can "Afford" to go!
47 Tsaord : You have a point!
48 Iowaman : The airline industry has survived a $40 increase in oil in the past few years. Another $20 would definitely hurt, but I don't think the effects would
49 Post contains images Art : That would provide a long term cap on the price of crude but how long would it take to get production up to 10 or 30 or 50 million barrels a day? See
50 FLY2LIM : Uh huh, except that in those days, airlines had lounges on planes, and were operating quite inefficiently. These days, airlines don't serve food, pac
51 N844AA : AA anounced a $291 million 2Q profit today without much in the way of hedging. WN announced a $333 million 2Q profit. CO will announce a multi-hundre
52 AirFrnt : There is a point at which recreational flying will just stop. Business already tries much harder now to limit flights then they did before 9/11. Howe
53 Bond007 : Oh if only you could pass that thought on to your party and the President. They don't seem to take the same view unfortunately ... which is part of t
54 EmSeeEye : Ok... I guess Iraq caused the fuel price surge to start in the 1999 - 2001 timframe? Granted fuel has risen sharply since that period also but why do
55 FLY2LIM : Thanks for the hard numbers. Believe me, I would love to see airlines return to regular profitability so their employees, customers, and suppliers ca
56 N844AA : United has emerged from bankruptcy protection. DL and NW are still in Ch. 11, but at least for DL (I don't know anything about NW's situation) bankru
57 FLY2LIM : I agree fully, and it was someone else who made this a political issue. Whether democrat or republican, or whatever, if oil goes to 100/barrel, it's
58 Swissy : Some of us older ones probably still remember the "fake" fuel crises back in the 70's...... same sh.. to day it is a matter of time until it catch is
59 Letsgetwet : The remarkable turnarounds and wonderful profits you talk about are not true pictures of what is really there. None of the Ch 11 airlines have proven
60 FLY2LIM : Exactly what I was trying to say! FLY2LIM
61 Cumulonimbus : If Oil hit 100$ a Barrel Planes will have propellers and Pilots amy be a thing of the past... (Civil UAV) Mike
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