Italianflyer
Posts: 515
Joined: Sun Nov 11, 2007 3:06 pm

Possible Lower Oil And The Industry

Thu Dec 06, 2012 6:13 pm

For whatever it's worth, I see more mainstream energy analysts are predicting the price of oil to fall to, and stabilize at, $50-60 per barrel in 2013. They claim the dynamics of increased shale oil extraction in North America, new oil fields coming online, slower growth in the BRIC countries and the Euro-zone recession will lead to cheaper oil in the medium-long term (5 - 8 years).
IF....big IF....this comes to pass....how could this impact the industry??

- Could it slow the rush to get away from 50 seaters?
- Could it lead to a roll-back of some add on ancillary revenue streams? (erg. charging for the 1st checked bag)
- Would it put a kink in the drive for consolidation?

And the elephant in the living room: how would this impact labor relations? If profit margins soar in a lower cost fuel environment, then unions will want some kind of snap back for a decade concessions.

What do you all think of a hypothetical lower jet-A fuel scenario and possible outcomes.
 
ushermittwoch
Posts: 2530
Joined: Fri Jan 09, 2004 10:18 pm

RE: Possible Lower Oil And The Industry

Thu Dec 06, 2012 6:20 pm

The airlines will neither get rid of the bag fees nor will they reduce the fuel surcharges. That's what deregulation does for you.
Where have all the tri-jets gone...
 
usairways787
Posts: 178
Joined: Wed Jun 22, 2005 12:42 pm

RE: Possible Lower Oil And The Industry

Thu Dec 06, 2012 6:33 pm

As much as I'd LOVE to believe this, I simply will not, until I see it with my own eyes.

US787
"Pre departure walk around complete, all doors closed, ready for pushback"
 
clemsonaj
Posts: 163
Joined: Thu Aug 27, 2009 2:01 pm

RE: Possible Lower Oil And The Industry

Thu Dec 06, 2012 6:34 pm

http://etfdailynews.com/2012/12/06/3...es-set-to-send-oil-prices-soaring/

Says the folks forecasting $30 oil are nuts and that it will likely go the other way. I'm inclined to agree. Oil demand might go down in a temporary recession, but the developing world needs more and more oil and the easily accessible supplies have just about been tapped out. The era of cheap oil has come and gone.
 
peterinlisbon
Posts: 842
Joined: Wed Feb 01, 2006 3:37 am

RE: Possible Lower Oil And The Industry

Thu Dec 06, 2012 6:55 pm

Shale oil is very expensive to extract, I think I once read that it is uneconomical under 80$ per barrel, so that would be a floor for the price in the worst case scenario for the economy. In any case, even if the world's economy grows very slowly or doesn't grow at all, there is still a process of gradual industrialisation and more and more people have cars in developing countries, and oil production can't keep increasing every year indefinitely to keep up with this (because there isn't an infinite amount of it).
 
tdscanuck
Posts: 8572
Joined: Wed Jan 11, 2006 7:25 am

RE: Possible Lower Oil And The Industry

Thu Dec 06, 2012 7:00 pm

Quoting ItalianFlyer (Thread starter):
IF....big IF....this comes to pass....how could this impact the industry??

Dolla dolla bills, y'all! In all seriousness, it would all drop straight to the bottom line and we'd see airline profits the likes of which haven't been seen since the late 90's.

Quoting ItalianFlyer (Thread starter):
- Could it slow the rush to get away from 50 seaters?

Maybe, although there are structural labour reasons they want those to go away too.

Quoting ItalianFlyer (Thread starter):
- Could it lead to a roll-back of some add on ancillary revenue streams? (erg. charging for the 1st checked bag)

I doubt it. They're too profitable.

Quoting ItalianFlyer (Thread starter):
- Would it put a kink in the drive for consolidation?

Probably, but only temporary.

Quoting ItalianFlyer (Thread starter):
And the elephant in the living room: how would this impact labor relations? If profit margins soar in a lower cost fuel environment, then unions will want some kind of snap back for a decade concessions.

Bloodbath. For some carriers, it's 20+ years of concessions. Employees will want their piece and then some.

Tom.
 
MountainFlyer
Posts: 486
Joined: Sat Jul 09, 2005 10:19 am

RE: Possible Lower Oil And The Industry

Thu Dec 06, 2012 7:22 pm

Quoting ItalianFlyer (Thread starter):
For whatever it's worth, I see more mainstream energy analysts are predicting the price of oil to fall to, and stabilize at, $50-60 per barrel in 2013. They claim the dynamics of increased shale oil extraction in North America, new oil fields coming online, slower growth in the BRIC countries and the Euro-zone recession will lead to cheaper oil in the medium-long term (5 - 8 years).
IF....big IF....this comes to pass....how could this impact the industry??


IMHO this is highly unlikely, and if it does happen, it would be temporary as a result of major economic distress, similar to 2008 or worse, which would likely offset any benefit to the airlines.

Not to turn this into a political discussion, but this is what bothers me when politicians think they can have any real effect of the price of fuel. The supply in the world is simply not enough to keep up with demand barring 1) a major economic disaster crushing worldwide demand, especially in the BRIC, 2) a major breakthrough in alternative energy crushing demand for oil, which is not likely in the near term, or 3) a major breakthrough discovery of easily obtainable oil deposits similar to the natural gas boom which would increase supply immensely, which is also not likely. The shale oil revolution is but a blip on the radar compared to the discoveries of the mid-20th century and the current world demand for oil.

OECD countries are actually decreasing oil demand, both because of increasing efficiency and lethargic economies, but the decrease in those countries is not enough to keep up with the rising demand in developing countries.
SA-227; B1900; Q200; Q400; CRJ-2,7,9; 717; 727-2; 737-3,4,5,7,8,9; 747-2; 757-2,3; 767-3,4; MD-90; A319, 320; DC-9; DC-1
 
cmf
Posts: 3120
Joined: Sun Jun 12, 2011 11:22 pm

RE: Possible Lower Oil And The Industry

Thu Dec 06, 2012 8:12 pm

Quoting peterinlisbon (Reply 4):
Shale oil is very expensive to extract

Even worse, the environmental costs are very uncertain. Don't be surprised if this end up as a very expensive cleanup bill for future generations. But at least we get to have fun now...
Don’t repeat earlier generations mistakes. Learn history for a better future.
 
Tan Flyr
Posts: 1558
Joined: Sat Aug 19, 2000 11:07 pm

RE: Possible Lower Oil And The Industry

Fri Dec 07, 2012 1:17 am

Quoting MountainFlyer (Reply 6):
The shale oil revolution is but a blip on the radar compared to the discoveries of the mid-20th century and the current world demand for oil.

With all respect Mountain..North Dakota now surpasses Alaska in daily production. Now over 750000BPD. Just 10 years ago it was a scant 100,000..and had been stable at that for years. When you count the Utica Shale in PA & Ohio, The Eagle Ford in SW Texas and the Monterey here in California you are talking about additional hundreds of thousands of barrels per day,potentially a million a day by 2020-2022. The ND breakeven is now down to 60 bucks...you are correct if you are refering to Canadian bitumen..it is an 80.00 breakeven.

Those lower costs help everyone in the economy..and thus will help all domestic carriers here in North America.

The most pressing economic issue will be the additional tax load in the US on households and how that plays out for consumer spending on vacations, etc. and the resulting business climate
 
Lufthansa
Posts: 2303
Joined: Thu May 20, 1999 6:04 am

RE: Possible Lower Oil And The Industry

Fri Dec 07, 2012 1:52 am

Guys have a look at what LS9 are doing and what is going on down in Brazil.
Embraer have already flown an E jet on bio-fuel produced by fermenting sugar cane directly
to hydrocarbons (rather than producing alcohol), and LS9's literature suggests they can use
this method significantly cheaper than producing alcohol because it avoids the energy intensive
process of distillation.

Plus its zero carbon and everything is already set up for hydrocarbon fuels.

One can argue about the ethics of using sugar cane but those countries that are in the cane business
seem quite receptive to the idea, with brazil already building pilot plants.
 
BD338
Posts: 576
Joined: Sun Jul 04, 2010 3:00 am

RE: Possible Lower Oil And The Industry

Fri Dec 07, 2012 2:02 am

IF (and it's a huge IF) oil does fall that low then the likely impact is increased profits for airlines. I would suggest employee profit sharing is the best way to go, not increasing base costs that might not be sustainable six months later when oil goes back through the roof. Fees aren't going away, airilnes have figured out we'll put up with them so they'll charge them until the breakpoint is reached. Same way overall fares won't go down, they might stabilize but won't be dropping significantly, if it all. Doubt there'll be rush to add capacity or extra aircraft. Any drop will likely be very temporary and the oil market is notoriously volatile, could be $50 in March but $100 in August. Short term knee jerk reactions from the industry will kill it again long term. Keeping a steady plan of controlled growth, cost containment and disciplined management is the key to long term stability.

Who is online

Users browsing this forum: Bing [Bot], cohrn, cornishsimon, EIASO, FAST Enterprise [Crawler], FriscoHeavy, GCT64, Gemuser, hi_flyer, icareflies, jm079, KarelXWB, Majestic-12 [Bot], mjoelnir, mozart, pspfan, ricport, SCQ83, shamrock350, Sightseer, starbucks, steman, SXI899, viasa, wedgetail737, whywhyzee, xiaotung and 360 guests