Waterbomber2
Topic Author
Posts: 451
Joined: Mon Feb 04, 2019 3:44 am

Oil price and fleet decisions, past and future

Mon Sep 16, 2019 5:09 pm

With the record daily oil price increase booked today, I think that it's time to look and reflect at how oil prices have and will affect past and future fleet decisions.

If we look at past fleet purchase decisions, airlines have ordered hundreds of A380's in low density configurations at a time that oil was above 100$ a barrel, yet when oil was at record lows in the early 2010's, the latest generation of fuel efficient aircraft, from the A320neo and B737MAX to the B787 and A350 have seen record orders, while the A380 has seen its order book dry up.

If you look at the whole picture, it doesn't make much sense. It's almost as if airlines are ordering aircraft without regard for oil prices while at the same time betting big on fuel hedging contracts.

Do they even know what they're doing or is it just plain herd mentality?
 
Etheereal
Posts: 343
Joined: Tue Nov 29, 2016 11:44 am

Re: Oil price and fleet decisions, past and future

Mon Sep 16, 2019 6:00 pm

There's a wendover video about ultra long routes that explains that issue properly.
JetBuddy wrote:
"737 slides off the runway" is the new "Florida man"..

:lol:
 
Prost
Posts: 2458
Joined: Wed Oct 03, 2012 6:23 pm

Re: Oil price and fleet decisions, past and future

Mon Sep 16, 2019 6:24 pm

Nobody will be making fleet decision based upon the past week’s activities. If these problems continue or worsen over the next month, then I can see a change happening, although it may end up being carriers Park no some less efficient frames rather than acquiring new.
 
Alias1024
Posts: 2539
Joined: Mon Oct 25, 2004 11:13 am

Re: Oil price and fleet decisions, past and future

Mon Sep 16, 2019 6:33 pm

Waterbomber2 wrote:

If you look at the whole picture, it doesn't make much sense. It's almost as if airlines are ordering aircraft without regard for oil prices while at the same time betting big on fuel hedging contracts.

Do they even know what they're doing or is it just plain herd mentality?


Airlines would model multiple fuel price scenarios when making purchase decisions, not just look at the current price and assume that will persist. They will also model different economic/passenger demand scenarios, interest rate scenarios, and if purchasing consider a range of residual value possibilities.

The boon of NEO and MAX orders for example had a few causes. First, getting in line early to reserve needed delivery slots to replace aging early build 320s and NGs. Second, it was seen as a natural fuel hedge should oil prices increase substantially. Third, low interest rates allowed airlines to finance the aircraft cheaply and get an efficient fleet in place.
It is a mistake to think you can solve any major problems with just potatoes.
 
BravoOne
Posts: 3602
Joined: Fri Apr 12, 2013 2:27 pm

Re: Oil price and fleet decisions, past and future

Mon Sep 16, 2019 6:36 pm

Assuming this does not further escalate I don't see this blip causing any big retrenchments for the healthy part of the industry. Life goes on.....
 
Scarebus34
Posts: 381
Joined: Tue Feb 12, 2019 10:54 pm

Re: Oil price and fleet decisions, past and future

Mon Sep 16, 2019 6:55 pm

Oil would have to sustain the higher prices for quite an extended period of time before fleet/network decisions are made. The oil price fluctuates so much that the spike today means relatively nothing.... with the spike today, Brent crude is still selling for under 70.00 a barrel.
 
MIflyer12
Posts: 5856
Joined: Mon Feb 18, 2013 11:58 pm

Re: Oil price and fleet decisions, past and future

Mon Sep 16, 2019 7:16 pm

Waterbomber2 wrote:
Do they even know what they're doing or is it just plain herd mentality?


You ought to model this as a one-week (or one month) price increase for a big carrier and compare that to the carrier's fleet investment. Please show your math. That ought to bring this to an end very quickly.
 
johns624
Posts: 2232
Joined: Mon Jul 07, 2008 11:09 pm

Re: Oil price and fleet decisions, past and future

Mon Sep 16, 2019 7:47 pm

Waterbomber2 wrote:
If we look at past fleet purchase decisions, airlines have ordered hundreds of A380's in low density configurations at a time that oil was above 100$ a barrel, yet when oil was at record lows in the early 2010's, the latest generation of fuel efficient aircraft, from the A320neo and B737MAX to the B787 and A350 have seen record orders, while the A380 has seen its order book dry up.
Could it have anything to do with the fact that most airlines can't fill up a high density A380?
 
Sooner787
Posts: 2567
Joined: Thu Jul 18, 2013 1:44 am

Re: Oil price and fleet decisions, past and future

Mon Sep 16, 2019 8:34 pm

Think the airlines more immediate concern are the numerous air routes thru
the gulf region. I've been too busy to check today, but are western airlines still
crossing Iranian airspace after the events of this past weekend?

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