Flyibaby From United States of America, joined Aug 2004, 1015 posts, RR: 6 Posted (5 years 3 weeks 6 days 8 hours ago) and read 4025 times:
Since the detrimental factor for the airlines appears to be the fuel costs, would a US Airline be able to, with significant investment, buy an oil company to stablize their oil prices? I'm not saying buy one just for the sake of their own jet fuel price, but potentially to help use the revenue from gas sales, ect to offset any increase in their own fuel consumption.
On a significantly smaller scale, Jetblue did something similar when it bought LiveTV, not just for the direct benefit, but also to profit off it as well.
PanHAM From Germany, joined May 2005, 7769 posts, RR: 26 Reply 1, posted (5 years 3 weeks 6 days 8 hours ago) and read 4011 times:
An oil company could buy an airline but an airline could never buy an oil company,
Besides,w hat good would it do? Oil is a commodity, the ownership of an oil company would have no influence on the price paid for jet fuel. The commodity itself is traded, the refinery and transport costs are there, as well as other related costs.
The only benefit of ownership would be, that with the profits of the oil business the losses of the airline business could be cross subsidized.
Jetdeltamsy From United States of America, joined Nov 2000, 2984 posts, RR: 8 Reply 2, posted (5 years 3 weeks 6 days 8 hours ago) and read 4001 times:
so even if an oil company paired up with an airline, how would they distribute the fuel so it was available at all locations? vast majority of towns and cities receive their gas from a general source. everybody gets the same gas. so what would the benefit be if they couldn't deliver the cheap oil?
I believe i have read that the first Braniff was somehow involved with an oil company.
[Edited 2008-04-24 22:31:32]
Worked for too many airlines to list. Banktupcy after bankruptcy after bankruptcy.
ComeAndGo From United States of America, joined Mar 2005, 950 posts, RR: 0 Reply 3, posted (5 years 3 weeks 6 days 8 hours ago) and read 3982 times:
You know airlines don't fly with oil but with jet fuel which is a form of diesel fuel. You can fill up a Hummer with jet fuel and it will drive. Same as heating oil. If the airline would buy an oil company it would have oil. It can't do anything with oil. The oil needs to be processed into jet fuel. For that you need a refinery. There's was just a topic about this on this forum "EK will have 450 planes" thread. EK being owned by Duabi in UAE an oil rich nation some people think that because of that they somehow get free fuel. In reality though, there's no refinery in the UAE that makes Jet fuel and their fuel supply is shipped from Singapore.
Flyibaby From United States of America, joined Aug 2004, 1015 posts, RR: 6 Reply 5, posted (5 years 3 weeks 6 days 8 hours ago) and read 3977 times:
Quoting PanHAM (Reply 1): The only benefit of ownership would be, that with the profits of the oil business the losses of the airline business could be cross subsidized.
I know it seems like it on the surface, but could it give an airline such a competitve advantage as Southwest has had with its oil hedges the last couple of years? I know this topic seems totally capitalist...but its an idea.
FlyASAGuy2005 From United States of America, joined Sep 2007, 6517 posts, RR: 11 Reply 6, posted (5 years 3 weeks 6 days 7 hours ago) and read 3932 times:
Quoting CO777ER (Reply 4): The day an airline can buy an oil company is the day Ralph Nader becomes president duck
Amen! The general consensus seems to be that an airline won't be able to afford to buy an oil company. And even if they did, they would make so much green, they would probably get rid of the airline itself and focus on the oil profits
Quoting Flyibaby (Reply 5): I know it seems like it on the surface, but could it give an airline such a competitive advantage as Southwest has had with its oil hedges the last couple of years? I know this topic seems totally capitalist...but its an idea.
Ok now your talking about something different. This would be a capital company and really has nothing to do with the actual oil company.
CAM2:"Lightning coming out of that one." CAM1: "What?"
PanHAM From Germany, joined May 2005, 7769 posts, RR: 26 Reply 8, posted (5 years 3 weeks 6 days 7 hours ago) and read 3859 times:
Quoting Flyibaby (Reply 5):
I know it seems like it on the surface, but could it give an airline such a competitve advantage as Southwest has had with its oil hedges the last couple of years? I know this topic seems totally capitalist...but its an idea.
Read my first answer again - oil is a commodity. It is traded. It has to be rrfined to become jet fuel, it has to be distributed.
Even if the airline would own an oil company, the only benefit could be that the profits of the oil company could be used to offset the losses of the airline., In between, the price charged for jet fuel must be the market price,nothing else.
Hedging is the answer, but for hedging, you need to be profitabel and have cash. SWA qualifies, so does LH and many European airlines. The in and out of Chapter 11 US majors don't have cash, they need trhe cash to feed quzarterly dividends to investors which leads to the next desaster. They have no room to build up beef.. But even with hedging, you can only hedge the commodity, not the refinery and distribution costs. only
Quoting Craazy (Reply 7):
Better question might be if an airline could buy or would it be advantageous for an airline to build it's own refinery?
See answer above. True is, there is a refinery shortage, especially in the US. However, if even the major oil companies don'tbuild new refineries because they take an outlook of several decades to return their investment, how could an airline raise the cash needed to build a refinery? Apart from the expertise etc.
PanHAM From Germany, joined May 2005, 7769 posts, RR: 26 Reply 12, posted (5 years 3 weeks 6 days 5 hours ago) and read 3753 times:
Quoting Vtdl (Reply 10): Maybe we should ask this question: Would Saudi Arabia Airlines has an unfair advantage
Any state carrier has an "unfair" advantage as long as a Government decides to have a national carrier at any cost and simply injecting cash to make good for the money burned during regular operations. This has nothing to do with oil, a poor country can, and there are many examples, do the same thing. Saudi Arabia can afford it, that is the only differnce.
AZ has an unfair advantage as they are technically bankcript since years and should have left the arena years ago but are artificially kept alive. Italy has no oil, though.
FlyASAGuy2005 From United States of America, joined Sep 2007, 6517 posts, RR: 11 Reply 13, posted (5 years 3 weeks 6 days 5 hours ago) and read 3728 times:
Quoting PanHAM (Reply 8): Hedging is the answer, but for hedging, you need to be profitabel and have cash. SWA qualifies, so does LH and many European airlines. The in and out of Chapter 11 US majors don't have cash, they need trhe cash to feed quzarterly dividends to investors which leads to the next desaster
Um, not really. Example: Delta is currently the most aggressive major in the fuel hedge arena for US majors.
CAM2:"Lightning coming out of that one." CAM1: "What?"
PHLstudent From United States of America, joined May 2006, 498 posts, RR: 8 Reply 15, posted (5 years 3 weeks 6 days 2 hours ago) and read 3566 times:
I work for an gasoline company (accounting department)
Jet fuel is not the only thing that is created when the oil is processed into "fuel". There are like 10 different outputs that are created. An airline would have to manage all of those outputs and either sell them or dispose of them (which is not very cost efficient)
Also I am not sure of the exact difference in cost, but I could imagine that it would be more profitable for the airline to sell the oil than use it themselves. Short of owning your own oil field, the price of the oil is what the market makes it. so even if an airline had a refinery they would still be buying the oil at $120 a barrel or what ever it is at today. I doubt that all the money that is involved with purchasing a oil company would make it beneficial (otherwise someone probably would have done it by now) A lot of airports have deals with gasoline companies anyway. I know the one I work for has deals to supply a bunch of airports. so airlines are probably got it at some "deal" (probably not very much but anything helps)
FlyASAGuy2005 From United States of America, joined Sep 2007, 6517 posts, RR: 11 Reply 17, posted (5 years 3 weeks 6 days 2 hours ago) and read 3513 times:
Quoting Cloudyapple (Reply 16): Hey if I had an oil company why should I bother to run an airline? Your proposition defies logic.
Quoting FlyASAGuy2005 (Reply 6): And even if they did, they would make so much green, they would probably get rid of the airline itself and focus on the oil profits
At least your looking at it the way I am!
CAM2:"Lightning coming out of that one." CAM1: "What?"
Burkhard From Germany, joined Nov 2006, 4248 posts, RR: 2 Reply 18, posted (5 years 3 weeks 6 days 2 hours ago) and read 3498 times:
Quoting Cloudyapple (Reply 16): Hey if I had an oil company why should I bother to run an airline? Your proposition defies logic.
Maybe you want to see the Queen and we have to call you "Sir!". Since you are here on a.net, I don't doubt that you would finance a hobby airline, just the name Virgin is already used, so think of another one.
YWG747 From Canada, joined Feb 2008, 245 posts, RR: 0 Reply 19, posted (5 years 3 weeks 6 days 2 hours ago) and read 3482 times:
Quoting ComeAndGo (Reply 3): There's was just a topic about this on this forum "EK will have 450 planes" thread. EK being owned by Duabi in UAE an oil rich nation some people think that because of that they somehow get free fuel.
I guess you must have missed the sarcasm.
How could anyone get free fuel regardless if your nation is one of the biggest oil producer.
To answer this question, simple answer is no an airline could never own an oil company.
First off it would be completely redundand that they own it, as it not resolve their fuel "crisis"
Secondly, I really doubt that any of the carriers have the financial backing to make such a purchase, especially with allot of the Q1 earnings that have just been posted.
Alaska Air Group has the second-best fuel hedge position in the industry, with half of Alaska and Horizon's planned consumption for the remainder of 2008 indexed to a crude oil price of $76 per barrel.
From WN's 1Q2008 press release:
We have derivative contracts in place for approximately 70 percent of our second quarter 2008 estimated fuel consumption, capped at an average crude-equivalent price of approximately $51 per barrel. Based on this derivative position and yesterday's market prices, we currently anticipate our second quarter 2008 economic jet fuel costs will be in the $2.35 per gallon range, significantly higher than first quarter even with anticipated hedging gains significantly higher than first quarter. For the full year 2008, we have derivative contracts for over 70 percent of our estimated fuel consumption at an average crude-equivalent price of approximately $51 per barrel.
FlyASAGuy2005 From United States of America, joined Sep 2007, 6517 posts, RR: 11 Reply 21, posted (5 years 3 weeks 6 days 1 hour ago) and read 3408 times:
AirNZ From , joined Dec 1969, posts, RR: Reply 22, posted (5 years 3 weeks 6 days 1 hour ago) and read 3383 times:
Quoting FlyASAGuy2005 (Reply 13): Um, not really. Example: Delta is currently the most aggressive major in the fuel hedge arena for US majors.
Hmm yeah! but being an 'aggressive' leader in anything to do with US majors wouldn't be a difficult achievement, now would it? (and yes, I also mean that light-hearted as well).
ChiGB1973 From United States of America, joined Mar 2004, 1605 posts, RR: 1 Reply 23, posted (5 years 3 weeks 6 days ago) and read 3347 times:
Quoting Afterburner (Reply 9): I think jet fuel is more similar to kerosene than to diesel fuel.
You can use a 50/50 mix of kerosene/diesel fuel in a diesel (truck) engine. I am not sure of 100% kerosene in a diesel engine nor about the using of jet fuel?
Rwessel From United States of America, joined Jan 2007, 1989 posts, RR: 2 Reply 24, posted (5 years 3 weeks 5 days 7 hours ago) and read 3060 times:
Quoting Flyibaby (Reply 5): I know it seems like it on the surface, but could it give an airline such a competitve advantage as Southwest has had with its oil hedges the last couple of years? I know this topic seems totally capitalist...but its an idea.
Hedges are completely different - the hedge (*if* fuel prices rise) socks the counterparty with a big loss.
The problem with this idea is that it doesn't actually accomplish anything. Ignoring issues of refining and whatnot, consider that SillyCo has two divisions - SillyCo-Air and SillyCo-Oil. Let’s say that oil (again we're simplifying and assuming oil is directly a useful commodity), is $100/bbl on the open market. Now let's assume that SillyCo-Air can sell $200 in seats for every barrel of oil used, and further let's assume SillyCo-Oil can pump a barrel of oil out of the ground for $50.
Now SillyCo-Air could buy a barrel on the open market for $100, and net a $100 profit (to simplify we're assuming there are no other costs). In that case SillyCo-Oil could pump a barrel of oil and sell it on the open market, netting a profit of $50. So SillyCo makes, net, $150. Now assume that instead of buying a barrel of oil on the open market, SillyCo-Air obtains it at cost from SillyCo-Oil. Now SillyCo-Air makes a profit of $150, but SillyCo-Oil make $0, and SillyCo *still* makes $150.
Now you might be able to save something in transaction costs and the like, but in a general sense, internally producing a commodity is of no help at all in terms of pricing and costs. Now having internal production might improve your ability to deal with shortages, but that’s a different issue.
25 Cloudboy: Going back to the general premise here, I realize that there is a lot more to turning oil into fuel. But I think what was trying to be said is that yo
26 Jetstar: As one of the largest single users of diesel fuel in the country, Union Pacific Corporation, the owner of Union Pacific Railroad bought an oil refine
27 JetJeanes: Years ago Fedex had a pipeline Run several miles from a refinery along Nonconconah creek in Mem straight to the airport. From what i recall I think Fe
28 Rwessel: But why would the consortium have lower costs than the bigger companies? They'd need a special purpose pipeline network, for example, whereas the big
29 WesternA318: Back in the 60's PSA expanded its corporate portfolio by starting Pacific Southwest Gas Exploration Co. (Or something to that effect) which did offse
30 Mayor: From what I recall, Delta owned a pipeline company back in the 80's. I can't find the details at the moment, tho.
31 Cloudboy: Ford did. OK, they didn't buuld chis, but they did the whole thing from ore through to a car at one time. Of course they got to be so big they kind o
32 Rwessel: That's not really comparable. Ford got into the steel business because no one in the U.S. could make Vanadium alloy steel. And quite arguably they st
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