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Could An Airline Buy An Oil Company?  
User currently offlineFlyibaby From United States of America, joined Aug 2004, 1016 posts, RR: 6
Posted (5 years 12 months 2 days 4 hours ago) and read 4907 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.

Any thoughts?

32 replies: All unread, showing first 25:
 
User currently offlinePanHAM From Germany, joined May 2005, 8742 posts, RR: 29
Reply 1, posted (5 years 12 months 2 days 4 hours ago) and read 4893 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.

However, that is economic non.sense.



I'm not fishing for compliments
User currently offlineJetdeltamsy From United States of America, joined Nov 2000, 2986 posts, RR: 8
Reply 2, posted (5 years 12 months 2 days 4 hours ago) and read 4883 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]


Tired of airline bankruptcies....EA/PA/TW and finally DL.
User currently offlineComeAndGo From United States of America, joined Mar 2005, 991 posts, RR: 0
Reply 3, posted (5 years 12 months 2 days 4 hours ago) and read 4864 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.

User currently offlineCO777ER From United States of America, joined Jun 2005, 691 posts, RR: 0
Reply 4, posted (5 years 12 months 2 days 4 hours ago) and read 4858 times:

The day an airline can buy an oil company is the day Ralph Nader becomes president  duck 

User currently offlineFlyibaby From United States of America, joined Aug 2004, 1016 posts, RR: 6
Reply 5, posted (5 years 12 months 2 days 4 hours ago) and read 4859 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.


User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 11
Reply 6, posted (5 years 12 months 2 days 4 hours ago) and read 4814 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 Big grin

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.



What gets measured gets done.
User currently offlineCraazy From United States of America, joined Jan 2008, 734 posts, RR: 0
Reply 7, posted (5 years 12 months 2 days 3 hours ago) and read 4798 times:
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Based on ExonMobile's profits last year, they could by every airline in the US and still have cash to spare.

Better question might be if an airline could buy or would it be advantageous for an airline to build it's own refinery?


User currently offlinePanHAM From Germany, joined May 2005, 8742 posts, RR: 29
Reply 8, posted (5 years 12 months 2 days 3 hours ago) and read 4741 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.



I'm not fishing for compliments
User currently offlineAfterburner From Indonesia, joined Jun 2005, 1201 posts, RR: 1
Reply 9, posted (5 years 12 months 2 days 3 hours ago) and read 4720 times:



Quoting ComeAndGo (Reply 3):
You know airlines don't fly with oil but with jet fuel which is a form of diesel fuel.

I think jet fuel is more similar to kerosene than to diesel fuel.


User currently offlineVtdl From United States of America, joined Jul 2004, 81 posts, RR: 0
Reply 10, posted (5 years 12 months 2 days 2 hours ago) and read 4676 times:

Maybe we should ask this question: Would Saudi Arabia Airlines has an unfair advantage?  Big grin

User currently offlineComeAndGo From United States of America, joined Mar 2005, 991 posts, RR: 0
Reply 11, posted (5 years 12 months 2 days 2 hours ago) and read 4665 times:

Outbound maybe, inbound certainly not.

User currently offlinePanHAM From Germany, joined May 2005, 8742 posts, RR: 29
Reply 12, posted (5 years 12 months 2 days 2 hours ago) and read 4635 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.

.



I'm not fishing for compliments
User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 11
Reply 13, posted (5 years 12 months 2 days 1 hour ago) and read 4610 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.



What gets measured gets done.
User currently offlinePanHAM From Germany, joined May 2005, 8742 posts, RR: 29
Reply 14, posted (5 years 12 months 2 days ago) and read 4549 times:



Quoting FlyASAGuy2005 (Reply 13):

Um, not really. Example: Delta is currently the most aggressive major in the fuel hedge arena for US majors

if that is so, it is a wise investment of chapter 11 exit financing.



I'm not fishing for compliments
User currently offlinePHLstudent From United States of America, joined May 2006, 498 posts, RR: 7
Reply 15, posted (5 years 12 months 1 day 22 hours ago) and read 4448 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)


User currently offlineCloudyapple From Hong Kong, joined Jul 2005, 2453 posts, RR: 9
Reply 16, posted (5 years 12 months 1 day 22 hours ago) and read 4431 times:



Quoting Flyibaby (Thread starter):
Any thoughts?

Hey if I had an oil company why should I bother to run an airline? Your proposition defies logic.



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User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 11
Reply 17, posted (5 years 12 months 1 day 22 hours ago) and read 4395 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

 checkmark   bigthumbsup  At least your looking at it the way I am!



What gets measured gets done.
User currently offlineBurkhard From Germany, joined Nov 2006, 4361 posts, RR: 2
Reply 18, posted (5 years 12 months 1 day 22 hours ago) and read 4380 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.


User currently offlineYWG747 From Canada, joined Feb 2008, 251 posts, RR: 0
Reply 19, posted (5 years 12 months 1 day 22 hours ago) and read 4364 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.

[Edited 2008-04-25 04:46:38]

User currently offlineBooDog From United States of America, joined Nov 2007, 257 posts, RR: 0
Reply 20, posted (5 years 12 months 1 day 21 hours ago) and read 4320 times:



Quoting FlyASAGuy2005 (Reply 13):
Um, not really. Example: Delta is currently the most aggressive major in the fuel hedge arena for US majors.

"Agressiveness" has nothing to do with success. How cheap you place your hedges is what it's all about.

Below is from the AS 1Q2008 results press release, discussed at http://www.airliners.net/aviation-fo...eneral_aviation/read.main/3953074/

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.



B1B - best looking aircraft ever.
User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 11
Reply 21, posted (5 years 12 months 1 day 21 hours ago) and read 4290 times:



Quoting BooDog (Reply 20):

I could have sworn I said US majors...

If you look back at the conversation, the person that first brought this up specifically cited chap 11 US majors and I responded with this.



What gets measured gets done.
User currently offlineAirNZ From , joined Dec 1969, posts, RR:
Reply 22, posted (5 years 12 months 1 day 21 hours ago) and read 4265 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).


User currently offlineChiGB1973 From United States of America, joined Mar 2004, 1612 posts, RR: 1
Reply 23, posted (5 years 12 months 1 day 21 hours ago) and read 4229 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?

M


User currently offlineRwessel From United States of America, joined Jan 2007, 2238 posts, RR: 2
Reply 24, posted (5 years 12 months 1 day 4 hours ago) and read 3942 times:
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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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