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Airline 'hype' About Fuel Costs  
User currently offlineOrion737 From , joined Dec 1969, posts, RR:
Posted (6 years 4 months 5 days 11 hours ago) and read 2046 times:

Are airlines justified in constantly ranting on about fuel prices and using it to drop routes and increase prices. it seems very convenient for them to pull out of a route, for example.

18 replies: All unread, jump to last
 
User currently offlineEXAAUADL From , joined Dec 1969, posts, RR:
Reply 1, posted (6 years 4 months 5 days 11 hours ago) and read 2046 times:



Quoting Orion737 (Thread starter):
Are airlines justified in constantly ranting on about fuel prices and using it to drop routes and increase prices. it seems very convenient for them to pull out of a route, for example.

In most places where there is deregualtion, they dont need an excuse to raise fares or change routes.....but airlines will blame oil for all their ills yes. I remember well in to the 1990s like 1993 or even 1994, airlines were still blaming Gulf War 1 for their poor performance


User currently offlineOrion737 From , joined Dec 1969, posts, RR:
Reply 2, posted (6 years 4 months 5 days 11 hours ago) and read 2021 times:

Im sick of hearing airlines whinge about fuel prices. get on with running the airline and give the customers a break from fuel, fuel, fuel.

User currently offlineFlyb From Canada, joined Aug 2006, 684 posts, RR: 0
Reply 3, posted (6 years 4 months 5 days 11 hours ago) and read 2001 times:

Why shouldn't they add fares? With prices at 1.159/L for auto fuel here in Calgary that is high...not as high as Europe but still high!

User currently offlineOrion737 From , joined Dec 1969, posts, RR:
Reply 4, posted (6 years 4 months 5 days 11 hours ago) and read 1995 times:

Raise fares but stop exagerrating it. Most airlines are overdoing it, constantly excusing service cuts, route cuts, frequency cuts all on fuel.

User currently offlineOPNLguy From , joined Dec 1969, posts, RR:
Reply 5, posted (6 years 4 months 5 days 11 hours ago) and read 1995 times:



Quoting Orion737 (Reply 2):
Im sick of hearing airlines whinge about fuel prices. get on with running the airline and give the customers a break from fuel, fuel, fuel.

Just as soon as Exxon, BP, Shell, Chevron, and all the other suppliers give us airlines a break from the $3.00+ per gallon Jet-A prices, which obviously can't happen until the price of crude retreats from historic $100+/bbl prices and stays at a level that's more reasonable. A big factor in that being able to happen is the geopolitical situation in many parts of the world.

Gee, now where did I put that magic wand of mine?  Wink


User currently offlineAzjubilee From United States of America, joined Apr 2000, 3894 posts, RR: 28
Reply 6, posted (6 years 4 months 5 days 11 hours ago) and read 1982 times:

Since fuel is now the number one cost of running an airline, it is most certainly a justified reason for the woes of the industry. Something has got to give. Since we can't take any more from the employees, fuel the airplanes with other than jet A, perhaps it's time the airlines pass the cost of doing business on to the consumer. Just like every other business out there.

User currently offlineOPNLguy From , joined Dec 1969, posts, RR:
Reply 7, posted (6 years 4 months 5 days 11 hours ago) and read 1968 times:



Quoting Azjubilee (Reply 6):
Since we can't take any more from the employees, fuel the airplanes with other than jet A,

Gadzooks! That's it! I'll use my magic wand to make jet engines able to run on salt water! Problem solved!  Wink

Next!


User currently offlineJRadier From Netherlands, joined Sep 2004, 4670 posts, RR: 50
Reply 8, posted (6 years 4 months 5 days 10 hours ago) and read 1896 times:



Quoting Flyb (Reply 3):
Why shouldn't they add fares?

Because for a certain price level a X number of passengers will fly. Raise the fares and your passenger numbers will go down. Trick is to get that balance where the fares and passenger numbers give you the highest income. If you raise your fares further it will have a negative effect on your income because your pax numbers go down. If the optimal income is lower than your costs there is no point in flying the route, as every flight will cost you. It's easier for everyone to just burn the money as the effect is the same. And:

Quoting Azjubilee (Reply 6):
Since fuel is now the number one cost of running an airline, it is most certainly a justified reason for the woes of the industry

Fuel costs go up so total costs go up, income is at it's optimal level and can't get higher... routes are going to turn in a loss.



For once you have tasted flight you will walk the earth with your eyes turned skywards, for there you have been and ther
User currently offlineAzjubilee From United States of America, joined Apr 2000, 3894 posts, RR: 28
Reply 9, posted (6 years 4 months 5 days 6 hours ago) and read 1764 times:

Jraider - the problem is that airlines are run on such a thin profit margin to begin with. When fuel costs like this go up, this becomes a variable they cannot control. These are not fixed costs like most everything else. Therefore, if the airlines are raising fares to keep up with the increased costs of doing business, losses occur.

OPNL... you say what you say in jest I hope. I hope you don't think I believe we should be using other than JetA in our planes. I forgot to include an OR in my statement... my bad.



AZJ


User currently offlineViscount724 From Switzerland, joined Oct 2006, 24906 posts, RR: 22
Reply 10, posted (6 years 4 months 5 days 6 hours ago) and read 1734 times:



Quoting JRadier (Reply 8):
Quoting Azjubilee (Reply 6):
Since fuel is now the number one cost of running an airline, it is most certainly a justified reason for the woes of the industry

Fuel costs go up so total costs go up, income is at it's optimal level and can't get higher... routes are going to turn in a loss.

And it depends on the aircraft type. Even when the oil price was $50 a bbl (which everyone considered extremely high just a year or two ago), 50-seat regional jets were becoming uneconomic to operate. At current fuel prices there must be very few routes where fares cover their operating costs.


User currently offlineOPNLguy From , joined Dec 1969, posts, RR:
Reply 11, posted (6 years 4 months 5 days 5 hours ago) and read 1681 times:



Quoting Azjubilee (Reply 9):

OPNL... you say what you say in jest I hope. I hope you don't think I believe we should be using other than JetA in our planes.

The fact that I referenced a "magic wand" should clear that up...  Wink


User currently offlineTxAgKuwait From United States of America, joined Aug 1999, 1803 posts, RR: 43
Reply 12, posted (6 years 4 months 5 days 5 hours ago) and read 1642 times:

To answer the question succinctly...airlines are exactly right in blaming most of their current woes on the price of fuel.

True, they've been crying wolf for a long time......and a lot of them were blaming fuel when the problem was mismanagement, not fuel.

But right now, it's fuel. I guess you could still blame mismanagement too...because the way to cover increased costs is to raise your prices. But airlines no longer have decipherable fare structures so the price you pay is based on the phase of the moon, whether or not a mosquito in Peru is beating its wings, and what the res agent reads in the entrails of a ritually sacrificed chicken. You have legacy carriers with high costs trying to offer cheap fares on the one hand while absolutely gouging last-minute purchasers on the other. Despite all of the sophisticated revenue management software...I'd be willing to bet that most airline management knows very little about what the fares are in their markets or how they were arrived at.

Also....I do not recall ever seeing an airline get rid of a "fuel surcharge." It is a fare increase, plain and simple....and trying to sugar coat the poison pill by calling it something else means very little. They just need to figure out how much to charge, raise their fares to that level, and be done with it.

Just how much does fuel cost affect the bottom line? A whole lot.

Here are a couple of examples from the 4th quarter of 2007:

Continental had expenses of $3.443 Billion during the quarter. Of that, $955 Million was spent on fuel. Thus fuel accounted for 27.7% of all expenses. The previous year their expenses were $ 3.137 Billion and fuel was a measly $725 Million - 23.1% of expenses. So it's a fairly nasty vicious cycle....the more fuel prices increase, the larger percentage of total expenses they become, and when they are a large portion of your total costs....the more they go up, the worse it is on your bottom line.

Fuel costs were the prime mover behind CO's ASM cost going from 10.64 cents to 11.08 cents between Q4 2006 and Q4 2007. Fortunately for them, their yield went from 12.11 cents to 13.03 cents while still seeing growth in passenger traffic. Thus they made a profit. It would still be better, IMHO, if they'd just call their fare increases fare increases instead of trying to disguise them as some sort of temporary (haha) fuel surcharge.

Their average cost of jet fuel (per gallon) rose from 200.64 cents in Q4 2006 to 250.89 cents in Q4 2007.

Southwest has some fuel hedged, and that's reflected in their average cost per gallon. And while some like to gloat over the thought of their hedges running out (they really shouldn't ever run out....their hedging program looks about 5 years out) they are hedged at ever-increasing oil costs. Thus, in Q4 2006 they paud an average of $1.55 per gallon of jet fuel, by Q4 2007 that average cost per gallon had risen to $1.87.

What did this do to their bottom line? Well, for one, it led to fuel increasing as a percentage of total expenses from 26.5% to 29.8%. Itt led to an increase in ASM costs from 8.79 cents to 9.37 cents. Fortunately they also saw yield increase (as a result of fare increases) from 13.04 cents to 13.64 cents.

Bottom line: depending on the carrier, fuel runs from 1/4 to 1/3 of the total cost of moving a passenger from origin to destination. The volumes of jet fuel purchased by airlines is staggering....and a few pennies a gallon can be millions in additional expense.

OPNL Guy's idea of salt water in the fuel tanks probably won't fly (pun partially intended). So maybe the answer is to go back to lighter-than-air aircraft (oh the humanity) and just have folks drift around in the jet stream or other prevailing winds. This would work well from LA to NY, but would suck if you were heading west.


User currently offlineAzjubilee From United States of America, joined Apr 2000, 3894 posts, RR: 28
Reply 13, posted (6 years 4 months 5 days 4 hours ago) and read 1613 times:

OPNL... got it... I figured there was sarcasm in there somewhere. You know the one dimentional forum and sarcasm, they don't mix very well. We're on the same page though... that's what matters.

User currently offlineSocalfive From , joined Dec 1969, posts, RR:
Reply 14, posted (6 years 4 months 5 days 2 hours ago) and read 1523 times:



Quoting Orion737 (Reply 2):
Im sick of hearing airlines whinge about fuel prices. get on with running the airline and give the customers a break from fuel, fuel, fuel.

What are you goofy? It's the single largest expense of any airline, of course they have to adjust non-profitable routes and ween themselves down to maximize yield. This is almost the single dumbest thread I've seen on here.


User currently offlineSkyguyB727 From , joined Dec 1969, posts, RR:
Reply 15, posted (6 years 4 months 5 days 1 hour ago) and read 1509 times:



Quoting Azjubilee (Reply 6):
Since we can't take any more from the employees, fuel the airplanes with other than jet A,

VS just tried a short 747 flight with one engine running on cooking oil or something. Maybe one day instead of a fuel truck pulling up to the wing, we'll see a big tanker truck with the McDonald's golden arches on the side! I just hope they filter out the pieces of french fries before they pump the oil into the wings!


User currently offlineJRadier From Netherlands, joined Sep 2004, 4670 posts, RR: 50
Reply 16, posted (6 years 4 months 4 days 19 hours ago) and read 1375 times:



Quoting Azjubilee (Reply 9):
Jraider

JRadier is the name  Wink. You got a good point, but I left that out not to complicate things.

Quoting Viscount724 (Reply 10):
At current fuel prices there must be very few routes where fares cover their operating costs.

Probably correct, and that's where total costs/income comes into play. RJ's are mainly used as feeder traffic so it's just one part of the journey. If you scrap the route you'll loose income elsewhere as well. I'm glad I don't have to figure that out...



For once you have tasted flight you will walk the earth with your eyes turned skywards, for there you have been and ther
User currently offlineBongodog1964 From United Kingdom, joined Oct 2006, 3536 posts, RR: 3
Reply 17, posted (6 years 4 months 4 days 18 hours ago) and read 1353 times:



Quoting Orion737 (Reply 4):
Raise fares but stop exagerrating it. Most airlines are overdoing it, constantly excusing service cuts, route cuts, frequency cuts all on fuel.

Airlines in other parts of the World may be cutting routes and frequencies blaming fuel cost, but I've seen no evidence of this in the UK. Yes they all mention fuel costs every time they release financial results, but few if any cuts as yet.


User currently offlineSocalfive From , joined Dec 1969, posts, RR:
Reply 18, posted (6 years 4 months 4 days 9 hours ago) and read 1201 times:

From USAToday, this should sum it up in a nutshell.



AA: Fuel to cost $1 billion more than expected
From The Associated Press: "Surging oil prices could leave American Airlines parent AMR, the nation's largest carrier, with a much fatter fuel bill than it anticipated just two months ago. In a filing Monday with the Securities and Exchange Commission, the Fort Worth-based company said it now expects to spend $2.98 per gallon on fuel this year, 12.5% more than its mid-January prediction of $2.65 a gallon. The revised forecast will leave the company with a 2008 fuel bill of $9.29 billion — more than $1 billion more than it was expecting earlier in the year — assuming prices don't rise even further than planned."


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