Airline companies stare at a burning issue as fuel prices skyrocket

Flybird · Mon Apr 30, 2018 9:04 pm

Fuel prices surged to multi-year highs in the domestic market, dragging the profits of airline companies

https://news.alphastreet.com/airline-co ... skyrocket/

The potential damage to the sector from the rising fuel prices can be gauged from the downbeat outlook announced by American Airlines (AA), which owns the largest aircraft fleet in the world, projecting a staggering $2 billion increase in costs this year due to high gasoline prices!

JetBlue forecasted a decline in RASM for the coming quarter.

Meanwhile, United Airlines managed to override the impact of a 26% increase in fuel costs in the first quarter and registered higher earnings.

Kilopond · Mon Apr 30, 2018 9:42 pm

Isn't that article a little bit too hysterical while lacking any facts?

Yes, crude and jet-a fuel prices are rising moderately, at least for now. Here is a graph from the IATA jet fuel price monitor:

lightsaber · Mon Apr 30, 2018 10:27 pm

Kilopond, you beat me too it!
Link for others to iATA jet fuel monitor.
http://www.iata.org/publications/econom ... index.aspx

Perspective:
Fuel is now $89.30/bbl
Fuel was $120 to $140/bbl for years.

Solutions?
1. Allegiant retiring MD-80s, replacing with fewer A320 & A319 with slightly more seats. Yeah, rather than do a laundry list, replace gas hogs!
2. Hedge.
3. Cut marginal routes
4. Upgauge RJs
5. Cut ULH (oh wait, ME3 are cutting...)

Record profits for US airlines will go to fuel.

We're in a synced global economic expansion. That means higher gasoline, jet fuel, and other commodity prices. Supply and demand means prices must go up to increase production.

Or buy a NEO or MAX and cut fuel 15% to 20%. This price increase will result in earlier retirement of heavy fuel burning. Moderate fuel burning will go to lower utilization. :yawn:

This is good news for the A350, 787, NEO, MAX, C-series, MRJ, E2-jets, and 777X. It is bad news for everything else.

Lightsaber

airportugal310 · Tue May 01, 2018 1:21 am

lightsaber wrote:
Kilopond, you beat me too it!
Link for others to iATA jet fuel monitor.
http://www.iata.org/publications/econom ... index.aspx

Perspective:
Fuel is now $89.30/bbl
Fuel was $120 to $140/bbl for years.

Solutions?
1. Allegiant retiring MD-80s, replacing with fewer A320 & A319 with slightly more seats. Yeah, rather than do a laundry list, replace gas hogs!
2. Hedge.
3. Cut marginal routes
4. Upgauge RJs
5. Cut ULH (oh wait, ME3 are cutting...)

Record profits for US airlines will go to fuel.

We're in a synced global economic expansion. That means higher gasoline, jet fuel, and other commodity prices. Supply and demand means prices must go up to increase production.

Or buy a NEO or MAX and cut fuel 15% to 20%. This price increase will result in earlier retirement of heavy fuel burning. Moderate fuel burning will go to lower utilization.

This is good news for the A350, 787, NEO, MAX, C-series, MRJ, E2-jets, and 777X. It is bad news for everything else.

Lightsaber

Brent closed at $75/bbl today, with WTI behind it as usual at $68

To add to your post, I think we are going to see a lot of "oddball" routes added during cheap fuel finding their way out the door. They were only money makers at lower bbl prices, I suspect

iad51fl · Tue May 01, 2018 1:45 am

The airlines can start using that "baggage fee" and "fuel surcharge" money they have been collecting over the last 3-4 years to pay the difference.

Rajahdhani · Tue May 01, 2018 2:07 am

iad51fl wrote:
The airlines can start using that "baggage fee" and "fuel surcharge" money they have been collecting over the last 3-4 years to pay the difference.

Or, rather - some mighty debt write off, courtesy of the Tax Payer? I mean, it's 2018. Why not, right?

1989worstyear · Tue May 01, 2018 2:22 am

Flybird wrote:
Fuel prices surged to multi-year highs in the domestic market, dragging the profits of airline companies

https://news.alphastreet.com/airline-co ... skyrocket/

The potential damage to the sector from the rising fuel prices can be gauged from the downbeat outlook announced by American Airlines (AA), which owns the largest aircraft fleet in the world, projecting a staggering $2 billion increase in costs this year due to high gasoline prices!

JetBlue forecasted a decline in RASM for the coming quarter.?

Meanwhile, United Airlines managed to override the impact of a 26% increase in fuel costs in the first quarter and registered higher earnings.

Your average Wall Street investor/analyst cracks me up - these are the very same people that throw down speculative bets on commodities, helping to drive prices up whenever some dipshit leader opens his mouth, but then when other sectors of the economy get impacted, they come out with articles like this.

Looks like there will be no 752's or 763's flying pax in 5 years as I predicted...

andrew50 · Tue May 01, 2018 2:30 am

Remember the baggage fees were imposed because of oil being $100 a barrel! The fares were high when oil was at $50 plus ripping people off on all the extra charges, baggage fees, and the biggest ripoff of any business I can think of the $200 change fee. They are making millions on all those fees. I have a hard to listening to the airlines whining again about fuel prices!

JackMeahoff · Tue May 01, 2018 2:46 am

There are a lot of wells in North Dakota, Texas and the Gulf of Mexico that have been shut off for the last few years. Once oil breaches $80 or $100 per barrel they will be turning them on, sending prices back downward. I know a guy in Texas and half of his small wells are capped for the time being.

MIflyer12 · Tue May 01, 2018 2:46 am

lightsaber wrote:
Kilopond, you beat me too it!
Link for others to iATA jet fuel monitor.
http://www.iata.org/publications/econom ... index.aspx

Perspective:
Fuel is now $89.30/bbl
Fuel was $120 to $140/bbl for years.

Solutions?

2. Hedge.

Record profits for US airlines will go to fuel.

We're in a synced global economic expansion. That means higher gasoline, jet fuel, and other commodity prices. Supply and demand means prices must go up to increase production.

Or buy a NEO or MAX and cut fuel 15% to 20%. This price increase will result in earlier retirement of heavy fuel burning. Moderate fuel burning will go to lower utilization.

This is good news for the A350, 787, NEO, MAX, C-series, MRJ, E2-jets, and 777X. It is bad news for everything else.

Lightsaber

Hedging doesn't reduce long-term fuel costs. Over time counterparties keep demanding higher strike prices. Hedging isn't cheap, either. Consider it like buying casualty or liability insurance, $ hundred millions at a whack.

For a while now AA's Parker has avoided hedging. Maybe it was necessary when early 00s US didn't have any money. We'll get a few cycles in and then see if it was smart.

RyanairGuru · Tue May 01, 2018 2:51 am

[twoid][/twoid]

JackMeahoff wrote:
There are a lot of wells in North Dakota, Texas and the Gulf of Mexico that have been shut off for the last few years. Once oil breaches $80 or $100 per barrel they will be turning them on, sending prices back downward. I know a guy in Texas and half of his small wells are capped for the time being.

Exactly. The chance of oil getting over $100 is actually very low. The beauty of the fracking wells in North Dakota, Oklahoma etc is that they can be turned on and off at will. Production will increase so long as prices keep rising.

Techfellow · Tue May 01, 2018 4:40 am

Fricking frackers haven't caught up yet to OPEC's attempts to drive up prices by reducing surplus from the marketplace.

c933103 · Tue May 01, 2018 5:09 am

It seems like fuel price will go back to and above the level CX hedged their fuel right around the time their fuel hedging contract end...

Jayafe · Tue May 01, 2018 5:26 am

lightsaber wrote:
Record profits for US airlines will go to fuel.

I'd say profits will remain the same and customers will pay the cost difference. Keep the money, spread the costs:

andrew50 wrote:
Remember the baggage fees were imposed because of oil being $100 a barrel! The fares were high when oil was at $50 plus ripping people off on all the extra charges, baggage fees, and the biggest ripoff of any business I can think of the $200 change fee. They are making millions on all those fees. I have a hard to listening to the airlines whining again about fuel prices!

mm320cap · Tue May 01, 2018 5:55 am

lightsaber wrote:
Kilopond, you beat me too it!
Link for others to iATA jet fuel monitor.
http://www.iata.org/publications/econom ... index.aspx

Perspective:
Fuel is now $89.30/bbl
Fuel was $120 to $140/bbl for years.

Solutions?
1. Allegiant retiring MD-80s, replacing with fewer A320 & A319 with slightly more seats. Yeah, rather than do a laundry list, replace gas hogs!
2. Hedge.
3. Cut marginal routes
4. Upgauge RJs
5. Cut ULH (oh wait, ME3 are cutting...)

Record profits for US airlines will go to fuel.

We're in a synced global economic expansion. That means higher gasoline, jet fuel, and other commodity prices. Supply and demand means prices must go up to increase production.

Or buy a NEO or MAX and cut fuel 15% to 20%. This price increase will result in earlier retirement of heavy fuel burning. Moderate fuel burning will go to lower utilization.

This is good news for the A350, 787, NEO, MAX, C-series, MRJ, E2-jets, and 777X. It is bad news for everything else.

Lightsaber

OR raise ticket prices

LAXLHR · Tue May 01, 2018 6:52 am

iad51fl wrote:
The airlines can start using that "baggage fee" and "fuel surcharge" money they have been collecting over the last 3-4 years to pay the difference.

Hmmm,, all of that went to Wall Street!

Dutchy · Tue May 01, 2018 6:56 am

MIflyer12 wrote:
Hedging doesn't reduce long-term fuel costs. Over time counterparties keep demanding higher strike prices. Hedging isn't cheap, either. Consider it like buying casualty or liability insurance, $ hundred millions at a whack.

For a while now AA's Parker has avoided hedging. Maybe it was necessary when early 00s US didn't have any money. We'll get a few cycles in and then see if it was smart.

True, it has the benefit that your costs are predictable, but in the end, it will come at a pice. The other party will demand a premium, so if you continue to operate you will pay more.

Dutchy · Tue May 01, 2018 7:00 am

mm320cap wrote:
lightsaber wrote:
Kilopond, you beat me too it!
Link for others to iATA jet fuel monitor.
http://www.iata.org/publications/econom ... index.aspx

Perspective:
Fuel is now $89.30/bbl
Fuel was $120 to $140/bbl for years.

Solutions?
1. Allegiant retiring MD-80s, replacing with fewer A320 & A319 with slightly more seats. Yeah, rather than do a laundry list, replace gas hogs!
2. Hedge.
3. Cut marginal routes
4. Upgauge RJs
5. Cut ULH (oh wait, ME3 are cutting...)

Record profits for US airlines will go to fuel.

We're in a synced global economic expansion. That means higher gasoline, jet fuel, and other commodity prices. Supply and demand means prices must go up to increase production.

Or buy a NEO or MAX and cut fuel 15% to 20%. This price increase will result in earlier retirement of heavy fuel burning. Moderate fuel burning will go to lower utilization.

This is good news for the A350, 787, NEO, MAX, C-series, MRJ, E2-jets, and 777X. It is bad news for everything else.

Lightsaber

OR raise ticket prices

This will probably happen indeed. But price elastics will tell us that there will probably less demand with higher prices.

Most of the planes mentioned can't be delivered in the next few years if ordered now, anyways. And I don't believe this will boost the 777X, a niche plane.

PatrickZ80 · Tue May 01, 2018 7:35 am

mm320cap wrote:
OR raise ticket prices

But that's something you want to be careful with as an airline. If you become too expensive this will influence your load factors.

Blerg · Tue May 01, 2018 7:59 am

Generally I don't think oil will be allowed to go very high in the future (unless some major event takes place). Many industries out there are already looking for alternatives and high oil prices will only act as a catalyst in this process.
Bus companies are a good example of that where it is estimated that this year the volume of not needed fuel will rise by 37% to 279.000 barrels due to the introduction of electric vehicles. Sure this is a tiny fraction of total demand but I am sure no business likes to lose customers, no matter how small they are.

https://www.bloomberg.com/news/articles ... ium=social

PatrickZ80 · Tue May 01, 2018 10:47 am

If ground transportation switches to durable solutions (electricity, hydrogen, etc) that means the demand for oil will drop so prices will go down again. Aviation is more difficult to switch to durable solutions than ground transport, so they'll continue to use the little bit of oil that's left.

At this moment the largest users of oil are ships, but I can imagine in the future they'll become durable as well. The five largest container vessels in the world cause just as much pollution as all the cars, trucks, busses, etc. on this planet. If someone would build a container vessel that would run on hydrogen that would make a huge step in consuming less oil. Hydrogen can be produced anywhere so it would be perfect as fuel for a ship.

Planesmart · Tue May 01, 2018 11:29 am

PatrickZ80 wrote:
The five largest container vessels in the world cause just as much pollution as all the cars, trucks, busses, etc. on this planet.

Not according to the latest IMO Environment Protection Ctte meeting.

What specific pollution are you referring to? Carbon? Consumption of heavy oils? Something else?

airbazar · Tue May 01, 2018 11:30 am

Flybird wrote:
Fuel prices surged to multi-year highs in the domestic market, dragging the profits of airline companies

https://news.alphastreet.com/airline-co ... skyrocket/

The potential damage to the sector from the rising fuel prices can be gauged from the downbeat outlook announced by American Airlines (AA), which owns the largest aircraft fleet in the world, projecting a staggering $2 billion increase in costs this year due to high gasoline prices!

JetBlue forecasted a decline in RASM for the coming quarter.

Meanwhile, United Airlines managed to override the impact of a 26% increase in fuel costs in the first quarter and registered higher earnings.

Oh please, cry me a river. Airlines have been charging us a "fuel surcharge" all these years while oil prices have been the lowest they've been in decades, and laughing all the way to the bank.

Flighty · Tue May 01, 2018 11:54 am

It is when airlines become inflexible and unable to ramp down operations that the real trouble happens. Airlines should always be on a footing of readiness for a fuel crisis or demand crisis. It happens roughly once a decade. A fuel crisis is a normal thing. “The world has changed” and “it will be different this time” are standard parts of the path to crisis.

A380MSN004 · Tue May 01, 2018 11:54 am

RyanairGuru wrote:
[twoid][/twoid]
JackMeahoff wrote:
There are a lot of wells in North Dakota, Texas and the Gulf of Mexico that have been shut off for the last few years. Once oil breaches $80 or $100 per barrel they will be turning them on, sending prices back downward. I know a guy in Texas and half of his small wells are capped for the time being.

Exactly. The chance of oil getting over $100 is actually very low. The beauty of the fracking wells in North Dakota, Oklahoma etc is that they can be turned on and off at will. Production will increase so long as prices keep rising.

+1 on that.

It happened few month ago.

24 Jan 2018 Brent went to 72 USD and then a Shale Oil went on the market.

13 Feb 2018 Brent went down to 62 USD and then price vary from 62 to 66 USD until recently.

Apparently profitability of the Shale Oil is around 60 USD from what experts said.

Let's see if this happen again.

slcdeltarumd11 · Tue May 01, 2018 12:34 pm

Most airlines will be fine. They have been stashing away profits and will simply raise prices. I don't think airlines like frontier or spirit are worried they have pretty fuel efficient planes and can easily raise farss by $20 they set the low prices the legacies will gladly follow. It's the RJs and older planes that are the concern as fuel goes up more.

Allegiant mad dog days are almost done anyway their airbuses are not bad on fuel

lightsaber · Tue May 01, 2018 12:46 pm

airportugal310 wrote:
Brent closed at $75/bbl today, with WTI behind it as usual at $68

To add to your post, I think we are going to see a lot of "oddball" routes added during cheap fuel finding their way out the door. They were only money makers at lower bbl prices, I suspect

I quoted spot prices of Jet A. There is a crack spread.

mm320cap wrote:

OR raise ticket prices

Aviation is a proven elastic market. Demand for aviation has nothing to do with the costs to supply the transportation. How is the airline making money? If it is ancillary sales, raising prices drives away customers.

But I see Dutchy already noted this:

Dutchy wrote:
This will probably happen indeed. But price elastics will tell us that there will probably less demand with higher prices.

Most of the planes mentioned can't be delivered in the next few years if ordered now, anyways. And I don't believe this will boost the 777X, a niche plane.

Now, I do believe there is upside potential in pricing in tight markets (USA). But globally it will be different.
This won't help the A330NEO or 777X. Cest la vie. There is more than one niche player out there...

Lightsaber

zackapan · Tue May 01, 2018 1:02 pm

PatrickZ80 wrote:
If ground transportation switches to durable solutions (electricity, hydrogen, etc) that means the demand for oil will drop so prices will go down again. Aviation is more difficult to switch to durable solutions than ground transport, so they'll continue to use the little bit of oil that's left.

At this moment the largest users of oil are ships, but I can imagine in the future they'll become durable as well. The five largest container vessels in the world cause just as much pollution as all the cars, trucks, busses, etc. on this planet. If someone would build a container vessel that would run on hydrogen that would make a huge step in consuming less oil. Hydrogen can be produced anywhere so it would be perfect as fuel for a ship.

I work as an engineer in ships engine rooms and with regards to pollution there are a lot more measures in place in the shipping industry than elsewhere. a lot of ships now are using LNG or low sulfur diesel.Europe and USA are strictly clean diesel with 0.1% sulfur on emissions. Further to that most ships want to save money so as a result you have things like exhaust gas economizers which are using the exhaust to heat various things around the ship such as water.

also this:https://www.quora.com/Is-it-true-that-the-15-biggest-ships-in-the-world-produce-more-pollution-than-all-the-cars

Dutchy · Tue May 01, 2018 1:06 pm

lightsaber wrote:
This won't help the A330NEO or 777X. Cest la vie. There is more than one niche player out there...

crownvic · Tue May 01, 2018 1:12 pm

Very simple...to offset increased fuel costs, the airlines are going to impose a takeoff fee and if the landing is successful a landing fee to the passenger.

Blerg · Tue May 01, 2018 1:33 pm

crownvic wrote:
Very simple...to offset increased fuel costs, the airlines are going to impose a takeoff fee and if the landing is successful a landing fee to the passenger.

Maybe Air Canada can introduce special taxes where you can choose whether to land on the runway or taxiway.

pwm2txlhopper · Tue May 01, 2018 1:39 pm

With all the revenue they make off bag fees that were implemented 10+ year ago in response to record high fuel prices, i don't have much sympathy. Fuel has been down for years now, but they still collect millions of dollars everyday for simply checking your bag.

Rdh3e · Tue May 01, 2018 1:54 pm

pwm2txlhopper wrote:
With all the revenue they make off bag fees that were implemented 10+ year ago in response to record high fuel prices, i don't have much sympathy. Fuel has been down for years now, but they still collect millions of dollars everyday for simply checking your bag.

And you got cheaper ticket prices as a result.

All you people complaining about airline fees still haven't noticed that the Apple makes 3X the margin of airlines. Don't hear any of you complaining about that. Or that Exxon alone made significantly more money last year than the entire airline industry.

michman · Tue May 01, 2018 1:59 pm

airbazar wrote:
Flybird wrote:
Fuel prices surged to multi-year highs in the domestic market, dragging the profits of airline companies

https://news.alphastreet.com/airline-co ... skyrocket/

The potential damage to the sector from the rising fuel prices can be gauged from the downbeat outlook announced by American Airlines (AA), which owns the largest aircraft fleet in the world, projecting a staggering $2 billion increase in costs this year due to high gasoline prices!

JetBlue forecasted a decline in RASM for the coming quarter.

Meanwhile, United Airlines managed to override the impact of a 26% increase in fuel costs in the first quarter and registered higher earnings.

Oh please, cry me a river. Airlines have been charging us a "fuel surcharge" all these years while oil prices have been the lowest they've been in decades, and laughing all the way to the bank.

Airlines don't call them fuel surcharges because they are about setting a non-discountable base for corporate contracts, not about fuel costs. It has nothing to do with the cost of an airline ticket which is set by supply and demand and competition (among other factors). A DL roundtrip V fare is $671.71 on JFK-LHR, while a V fare on DTW-LHR is $1012.71. And yet they both have a $300 carrier-imposed surcharge. If you were to ban these surcharges, they would simply raise the base fares on these routes. As long you are not buying discounted corporate fares, it has zero impact on you.

slider · Tue May 01, 2018 2:06 pm

Airlines in the post-consolidation world have proven they can make money when Jet A is at $120/bbl.

I'm far less concerned about oil prices insofar as airlines than I ever have been previously.

WaywardMemphian · Tue May 01, 2018 2:13 pm

JackMeahoff wrote:
There are a lot of wells in North Dakota, Texas and the Gulf of Mexico that have been shut off for the last few years. Once oil breaches $80 or $100 per barrel they will be turning them on, sending prices back downward. I know a guy in Texas and half of his small wells are capped for the time being.

Good Lord, I can't wait to see the production numbers come June and July for the US. This spike has been caused by the Stock Market slowing and folks playing in futures again, the continued disfunction of the Middle East, and Venezuela. America is about blow to roof off of output numbers.

This also shows why putting planes like the C-Series into the fleet would pay dividends in spikes like this.

parapente · Tue May 01, 2018 2:13 pm

Any airline that does not work in advance to these oil spikes (it won't be the last) are stuck as you cannot change aircaft that quickly.
Best thing is to learn and get modern aircaft in as soon as business plans allow.
I guess the sort of aircaft to be getting rid of are.
744's,all 340's,772's?,767's? But most of these are going soon anyway.
As a side benefit.Having the 'greenest' aircaft in general does send a positive message to governments about the industry as a whole 'doing their best' for the environment/CO2 issues.
Clearly (especially in Europe) the car is being very heavily targeted.I also note that there has been some major movement within the global shipping industry in the last couple of months.
Next stop Aircaft?? Best to move before you are pushed in general imho.

devron · Tue May 01, 2018 2:17 pm

slider wrote:
Airlines in the post-consolidation world have proven they can make money when Jet A is at $120/bbl.

I'm far less concerned about oil prices insofar as airlines than I ever have been previously.

I agree but

1) If high oil prices are combined with an economic downtrun
2) Non-consilidated airlines (EU: Lot, SAS; USA: allegiant; Asia; lots of them)
3) airlines that potentially added lots of capacity

or a combination of the 3 above it will be difficult

Austin787 · Tue May 01, 2018 2:33 pm

andrew50 wrote:
Remember the baggage fees were imposed because of oil being $100 a barrel! The fares were high when oil was at $50 plus ripping people off on all the extra charges, baggage fees, and the biggest ripoff of any business I can think of the $200 change fee. They are making millions on all those fees. I have a hard to listening to the airlines whining again about fuel prices!

+1.

Southwest didn't add baggage fees or change fees when oil exceeded $100, and yet they are consistently profitable. While their competitors added/raised fees and continued posting big losses.

Armodeen · Tue May 01, 2018 2:48 pm

They don't call them 'fuel surcharges' anymore (at least in the UK) because of the threat of legal action. Hence 'carrier imposed surcharges' were born :roll:

michman wrote:
airbazar wrote:
Flybird wrote:
Fuel prices surged to multi-year highs in the domestic market, dragging the profits of airline companies

https://news.alphastreet.com/airline-co ... skyrocket/

The potential damage to the sector from the rising fuel prices can be gauged from the downbeat outlook announced by American Airlines (AA), which owns the largest aircraft fleet in the world, projecting a staggering $2 billion increase in costs this year due to high gasoline prices!

JetBlue forecasted a decline in RASM for the coming quarter.

Meanwhile, United Airlines managed to override the impact of a 26% increase in fuel costs in the first quarter and registered higher earnings.

Oh please, cry me a river. Airlines have been charging us a "fuel surcharge" all these years while oil prices have been the lowest they've been in decades, and laughing all the way to the bank.

Airlines don't call them fuel surcharges because they are about setting a non-discountable base for corporate contracts, not about fuel costs. It has nothing to do with the cost of an airline ticket which is set by supply and demand and competition (among other factors). A DL roundtrip V fare is $671.71 on JFK-LHR, while a V fare on DTW-LHR is $1012.71. And yet they both have a $300 carrier-imposed surcharge. If you were to ban these surcharges, they would simply raise the base fares on these routes. As long you are not buying discounted corporate fares, it has zero impact on you.

frmrCapCadet · Tue May 01, 2018 2:51 pm

I think the consensus on oil reduced consumption is that sometime between 2022 and 2027 electrification of transportation will reduce oil by 2 billion barrels a day, and from there ever decreasing. My guess is that this will happen on the early side. This will leave lots of 'gas' available for aviation. From an economics standpoint if there were a carbon tax on petroleum it likely would be cheapest for airlines to pay that tax rather than wring the last little bit of efficiency out of the ever more problematical jet engines. Go for a little more reliability over efficiency. Pay some money that would subsidize wind and solar (or storage). The oil industry has every reason to ensure the market they have in aviation - lower prices will do that.

toxtethogrady · Tue May 01, 2018 3:01 pm

Techfellow wrote:
Fricking frackers haven't caught up yet to OPEC's attempts to drive up prices by reducing surplus from the marketplace.

At the moment, though, inventories are continuing to shrink. At some point, that will drive the price up, and when it happens, it will be a bigger move than anyone has anticipated.

Also, fracking wells tend to have shorter service lives than conventional wells, so as they drain, they have to be replaced.

Faro · Tue May 01, 2018 3:03 pm

lightsaber wrote:
Perspective:
Fuel is now $89.30/bbl
Fuel was $120 to $140/bbl for years.

Solutions?
1. Allegiant retiring MD-80s, replacing with fewer A320 & A319 with slightly more seats. Yeah, rather than do a laundry list, replace gas hogs!
2. Hedge.
3. Cut marginal routes
4. Upgauge RJs
5. Cut ULH (oh wait, ME3 are cutting...)

Agreed except that hedging isn't a sure-fire 'solution'...depending on fuel price evolution at hedge maturity date the hedging solution can easily transmute into a hedging problem...hedging is basically kerosene casino...

Faro

dc10lover · Tue May 01, 2018 3:15 pm

Speed up the retirement of the CRJ200's.

JackMeahoff · Wed May 02, 2018 12:02 am

A380MSN004 wrote:

+1 on that.

It happened few month ago.

24 Jan 2018 Brent went to 72 USD and then a Shale Oil went on the market.

13 Feb 2018 Brent went down to 62 USD and then price vary from 62 to 66 USD until recently.

Apparently profitability of the Shale Oil is around 60 USD from what experts said.

Let's see if this happen again.

All they have to do reactivate wells in North Dakota and the Gulf of Mexico that have been shut down for the last 3-4 years and prices will come down immediately. The Sheiks are angry because they are no longer in complete control.

MIflyer12 · Wed May 02, 2018 12:19 am

slider wrote:
Airlines in the post-consolidation world have proven they can make money when Jet A is at $120/bbl.

United declared net income of $147 million on operating revenue of $9.0 Billion last quarter, and paid an average of $2.11/gallon in fuel, $1.965 Billion for fuel. That's $405 million more than 1Q17.

AA declared net income after special items (yeh, some merger charges, four years after the financial transaction) of $186 million on operating revenue of $10.4 Billion, paid an average of $2.11/gallon.
$2.161 Billion for fuel. That's $441 million more than 1Q17.

Alaska, too, had weak, income, little of which ALK execs attributed to merger expenses.

Several U.S. carriers would report losses well before $120/barrel.

U.S. carriers have given away a LOT in compensation in the last five years. Call it a snap-back post-bankruptcy if you want.

cvgComair · Wed May 02, 2018 12:39 am

1989worstyear wrote:
Looks like there will be no 752's or 763's flying pax in 5 years as I predicted...

I highly doubt DL will retire all of its 757's and 767's in 5 years, some of the older models sure, but they do have some of the most recently built models of both types. Given DL's retirement schedule of 25-30, both types should be around into the mid/late-2020's.

muralir · Wed May 02, 2018 12:40 am

michman wrote:
Airlines don't call them fuel surcharges because they are about setting a non-discountable base for corporate contracts, not about fuel costs. It has nothing to do with the cost of an airline ticket which is set by supply and demand and competition (among other factors). A DL roundtrip V fare is $671.71 on JFK-LHR, while a V fare on DTW-LHR is $1012.71. And yet they both have a $300 carrier-imposed surcharge. If you were to ban these surcharges, they would simply raise the base fares on these routes. As long you are not buying discounted corporate fares, it has zero impact on you.

I thought the rise of all these surcharges is because "fees" technically aren't taxed by the Feds. i.e. aviation taxes are determined by your base fare, and fees such as fuel surcharges, baggage fees, etc. are not subject to the tax. Also, I knew there were moves in Congress to change this, but I'm not sure what happened.

Tucker1 · Wed May 02, 2018 12:50 am

Depends a lot on where you get your fuel

1989worstyear · Wed May 02, 2018 1:57 am

parapente wrote:
Any airline that does not work in advance to these oil spikes (it won't be the last) are stuck as you cannot change aircaft that quickly.
Best thing is to learn and get modern aircaft in as soon as business plans allow.
I guess the sort of aircaft to be getting rid of are.
744's,all 340's,772's?,767's? But most of these are going soon anyway.
As a side benefit.Having the 'greenest' aircaft in general does send a positive message to governments about the industry as a whole 'doing their best' for the environment/CO2 issues.
Clearly (especially in Europe) the car is being very heavily targeted.I also note that there has been some major movement within the global shipping industry in the last couple of months.
Next stop Aircaft?? Best to move before you are pushed in general imho.

What about the thousands of A320 CEO's with 1988-era systems and engines? Or 737 NG's with 1996 engines and some 60's system architecture left over from the Classics?

The A340 and 767 are a blip by comparison in the worldwide fleet and will probably all be gone (from pax service) in 5-7 years - it's the NB designs we've been stuck with for 30-20 years that really need to be looked at.

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