Quick Fuel Check

The price of fuel continues to rise, but I don’t think it’s easy for most people to really grasp how devastating this is, because it’s rarely put in normal terms. $125 a barrel? What the heck does that mean in reality? JetBlue, when they pulled out of LAX before even starting, gave us a number to work with. They say that it now costs more than $15,000 to fly a plane across the country. So let’s do a little math.

Each A320 they fly has 150 seats. Let’s say they fly with 85% of their seats filled on average. That means 127 seats are filled. If you take that $15,000 cost and divide it over 127 people, each person has to fork over $118 each way just to cover fuel.

Seriously. Remember those days of $99 each way across the country? That wouldn’t even cover fuel these days. And that $15,000 estimate came out when fuel was lower than it is now. If you find a low fare, be thankful. They’re going to continue to become more scarce.


24 Responses to Quick Fuel Check

  1. David says:

    Does the $15,000 number that JetBlue quoted refer purely to fuel, or does it also include things like plane lease / debt interest payments, navigation charges, cost of employing crew and all the other fixed costs before a single passenger gets on the plane ?

    Jet fuel is currently a little over $1,100 dollars per metric tonne, so $15,000 buys no more than 13 tonnes

  2. Mike says:

    And yet I still hate paying more then $99 each way, even if it is across the country.

  3. SeaFlyer says:

    Another way to think about it is this. A ~70% increase in the price of fuel for the aggregation of top 10 US carriers results in a 15-20% increase in overall unit costs, which means that this past month (or quarter) when carriers reported RASM growth in the 5-10% range, they were essentially only able to recoup 40-60% of the fuel cost impact to their business, resulting in a margin drop of 5-10 points, which was the driving force behind the $2B year-over-year reversal in industry profitability (excluding special items). Fares need to go up 15-20% and lots more capacity might need to come out to make that happen. Not good at all.

  4. CF says:

    David – That was a fuel-only quote

    SeaFlyer – Thanks for that. It’s been fairly shocking to me to see some industry writers say that there have been fare increases of x% and fuel has gone up less than that, so the airlines are trying to screw people. Yeah, right. The airlines are the ones who are screwed right now because they can’t vary capacity enough in the short term. We will have to see capacity come out of the system and fares will have to go up further.

  5. David says:

    Correction – was looking at old data. Fuel is about $1,250 per metric tonne

  6. David says:

    Sorry – meant to tie this all into one post.
    Does anyone have figures for various plane types – e.g. 50 seat regional, 150 seat narrowbody, and 350 seat widebody of typical fuel burn rates ? Yes, I know that an extra 100 people means an extra 8 or 9 tonnes of weight, and that gaining altitude is more fuel intensive than cruising, but something approximate would be very helpful.

    In addition, does anyone have ex-fuel figures for costs per available seat kilometre for both a typical no-frills carrier, and a network carrier ?

  7. Adam says:

    I have read that fuel burn on CRJ’s and smaller aircraft is much higher than that of a 737 or A320, but every year I end up on more CRJ’s than the previous year. However they haven’t cut the number of roundtrips per day to business destinations, i.e. Chicago, Dallas. Seems to me it would make more sense to fly one or two trips per day with larger aircraft.

    And I’m crossing my fingers that someday the fares will directly correspond to distance traveled. I always thought it ridiculous that people were paying so little going from JFK to LAX while someone going from ORD to JFK would pay equal or more for less than half the distance. I travel to Canada a lot and can’t believe the fares for crossing a great lake compared to fares crossing an ocean.

  8. OAG says:

    $118 per person doesn’t sound too bad. How much is it if your in the lav?

  9. CS says:

    Sorry if this is a dumb question, but I know that in the US we pay a lot less for gasoline for cars than in Europe and other countries. Is that true for jet fuel as well? Or does the relatively smaller number of larger volume consumers of jet fuel and the fact that flights (and airlines paying for fuel) crisscross the globe mean that the price is fairly consistent worldwide?

  10. Benji says:

    I paid $260 rt east to west coast for a trip in June, and I’m grateful for that. Absolute lowest I saw was $230. But now for me to take a trip to Europe or somewhere from NYC is over $1000! Man, this is awful. I want to blame our President, but I don’t even know where to begin.

  11. flylbb says:

    hmmm….last time fuel got this bad (accounting for inflation) was the early 80s….and we lost or almost lost

    Braniff
    Eastern
    Continental
    Frontier (Mark I)
    Altair
    Air Florida
    Air New England
    Northeastern International

  12. CF says:

    David – I wish I had that info, but I don’t. Ex-fuel CASM/CASK should be easy to find in every carrier’s financial statements, but I don’t have it in a central location. For fuel consumption, you can try hanging around Airliners.net’s Tech Ops forums.

    Adam – It would surprise me if the CRJ burned more fuel than a 737 on the whole, but I fully expect it on a per passenger basis. I think that’s why the 50 seaters are becoming less and less popular while the 70 and 90 seaters are picking up steam. I wouldn’t count on fares corresponding with distance of travel. That hasn’t happened since prior to deregulation. It’s all demand-based now.

    CS – I don’t know the answer to that, but it’s a good question. Fuel can cost much more in some places than others, and that’s one reason airlines decide to tanker fuel in so they don’t have to fill up when they fly back from an expensive place. But I don’t know if you see the same extremes you do with gas.

    flylbb – I think most of those tended to go away because of their inability to adapt to the huge change of deregulation and not because of fuel prices so much. Also, Eastern didn’t go away until the early 1990s. Frontier was acquired and became part of Continental down the line.

  13. JBM says:

    Since JetBlue gave detail on the Airbus, here is some Boeing fuel info for current production aircraft that might be helpful. These are rounded based on a full payload of passengers and baggage. Fuel is assumed at $3.75 per gallon including taxes.

    2,000nm flight segment

    737-700 25,000 pounds
    $13,992 total fuel burn
    126 seat capacity, 107 actual pax = $131 per pax

    737-800 28,000 pounds
    $15,670 total burn
    162 capacity, 138 actual pax = $114 per pax

    737-900 32,000 pounds
    $17,910 total burn
    180 capacity, 153 actual pax = $117 per pax

    767-200 45,000 pounds
    $25,180 total burn
    181 capacity, 154 actual pax = $164 per pax

    777-200 65,000 pounds
    $36,381 total burn
    301 capacity, 256 actual pax = $142 per pax

    Notice that bigger isn’t always better. This fuel environment does weird things to relative aircraft economics. What does matter is operating risk. If an airline can’t fill the incremental capacity of the -800, flying a -700 makes sense. The 767 and 777 are better suited to longer stage lengths where the 737 can’t operate (with mixed-cabin configurations).

    To answer the CRJ question, the CRJ-200 will burn about 5,000 pounds of fuel (746 gallons) on a 900 nautical mile flight and 8,000 pounds (1,200 gallons) on a 1,500 nm flight. So yes, on a 900 mile stage length, the trip cost of the CRJ is lower than the 737-700 and the per passenger cost is significantly higher. But again, if you can’t fill the 737-700’s extra capacity, you’re better off flying the CRJ. The real problem for 50 seaters is that fuel burn for 70 and 90 seat variants isn’t much higher. Regional jets still make sense, but the 50 seaters don’t.

  14. I wonder if carrier’s fuel hedging is tied to when a ticket is purchased. Since you can get a ticket almost nine months in advance fuel can change significantly between when a ticket is purchased and when the travel is completed. When they do hedging for fuel are they attempting to account for this risk, or are they really just investing their excess cash in something they can use?

  15. Dan says:

    CS – this might explain about jet fuel costs:

    Gasoline for cars is taxed much more heavily in most countries in Europe compared to the USA – this tax difference is why the retail price is so different. Other local factors tend to be pretty insignificant in comparison.

    Jet fuel on the other hand (by treaty ?) is always available either tax free or at a very low tax rate – this was designed specifically so that airlines would *not* tanker in fuel so as to arbitrage between the tax rates of different countries and thus create a jet fuel tax bidding war

    The EU however is thinking about imposing an EU-wide jet fuel tax rate for flights that go purely within the EU in the interests of global warming – an example being a flight from Berlin to Madrid. If every airport in the EU charges the same tax rate, there’s no point in tankering fuel for shorthaul flights.

    http://news.bbc.co.uk/1/hi/business/4273223.stm

    Fuel tankering does still happen – but for reasons like lack of fuel availability (e.g. staff at a local refinery are on strike), doubts over the quality of the fuel at an airport (e.g. in countries with very low incomes), or if flying a multi leg trip on a tight schedule with each leg being very short. Tankering fuel means carrying excess weight, so increasing the fuel burn rate – something airlines are loath to do at $125 per barrel !

    Jet fuel *does* vary a small amount in price between both countries and airports.
    1) Crude oil has to be shipped to a refinery – meaning it’s easier to ship to a refinery in Kuwait or a major port than a refinery in Japan.
    2) Lighter crudes produce more jet fuel, while heavier produce more useless gunk like tar. If heavy crude is available locally, but shipping costs of light crude are high, refineries will charge more for jet fuel. A refinery can do extra cracking, but this costs more money.
    3) Jet fuel has to be shipped from the refinery to the airport – meaning that jet fuel at NY harbour / JFK costs less than jet fuel in a small airport in Montana. As an example, CDG (main airport in Paris) has a dedicated pipeline to the major port Le Havre on the French coast – meaning fuel transport costs are very low.

    You can get a feel for this at:
    http://www.iata.org/whatwedo/economics/fuel_monitor/price_analysis.htm

  16. David says:

    Nicholas – hope this helps on hedging – sorry if it’s a little long !

    As to hedging of fuel, the main driver of the fuel is getting the empty plane from A to B. The passengers and their luggage by comparison weigh relatively little.

    Assume an average person weighs 75 kg (165 lb) – children tend to balance out those who weigh over 200 lb, and that people carry an average of 20 kg (45 lb) of total luggage, the weight per passenger is about 210 lb. On something like a 737-800, with an 85% load factor, this means the passengers weigh about 13 or 14 tonnes.

    The empty weight of a 737-800 is over 41 tonnes in comparison. Ignoring the weight of the fuel, this means takeoff weight of at least 55 tonnes, so the passengers cover no more than 25% of the weight. Of course there’s also fuel to add, so passengers in practice are maybe 20% of takeoff weight.

    Even if the load factor is 10% different from airline expectation, this still has a negligible impact on the amount of fuel required to operate the flight. If an airline wants to reduce its fuel bill, the only answer is to change the type of plane operating the flight (so fewer seats, and reduced revenue), or cut the flight from the schedule altogether and thus cut out all revenue !

    Things like fuel surcharges are useful and can be varied as the price of jet fuel varies over time, but they tend to be a fairly blunt tool for recouping the cost of jet fuel increases.
    Airlines tend to oversurcharge on short haul flights and undersurcharge on long haul flights – adding $30 for fuel per short haul instead of $20 is not a major thing if your competitors do it as well, but consumers would not fly if they saw long haul surcharges of $400 per flight !

    To hedge fuel requires having a good credit rating – so hedging is not available for airlines in Chapter 11 bankruptcy or similiar. Those that do hedge will tend to buy their fuel in advance over time – maybe 20% 9 months in advance, 40% 6 months in advance, 70% 3 months in advance and 90% 1 month in advance. Airlines are not in the business of predicting (and should not try !) when jet fuel will go up / down in price, but they can at least benefit from some sort of averaging of purchase price to in case jet fuel undergoes a sudden price change.

  17. CF says:

    JBM – Thanks, that’s great stuff. Is there a public place to look this up? You’d think an airline would want to put a fuel calculator up on its website so people could see what they’re costing.

    Dan – Thank you for the explanation. I think I’m confusing myself a little. While the price of fuel may not vary too much, as you say, the fuelers themselves may charge more for their services in some places and that is why sometimes people may look to tanker.

  18. Benji says:

    flylbb – I think some of those airlines went away for other reasons (eg, Air Florida)

    But if this is true and airfares are expensive in the US because of gas prices, why isn’t this true for flights within Europe, where gas is even more expensive (hence the smaller cars, which also help navigate the narrower streets)? I mean, granted trans-Atlantic flights for this summer are $1000+, but I would have thought fares would be higher over there in general since $4/gallon is still “cheap” for most of the EU.

  19. Adam says:

    Looks to me that the airlines should cut their capacity down and start flying 737-800’s at full capacity. Sun Country touts their 737’s as being the most fuel efficient aircraft out there per passenger seat mile. Guess that’s how they underprice NW’s DC-9’s on the the same route.

  20. flylbb says:

    it’s true that the early 80s failures weren’t tied directly to fuel…but most of these carrier’s did have bloated business plans that weren’t effective for the enviroments they were operating in. this is more my point.

    Super Savers (as coined by AA) didn’t come into effect until around this time. Yield Management was birthed around this time. And I’m not just speaking on jet fuel itself….as Consumer Fuel prices probably did have some effect on consumer demand even as dereg took off…but whatever effect was quickly masked by falling airfares. Overall, the late 70s and early 80s were not economic highlights.

    …and you see now that the industry’s business plan can’t survive the current operating environment. Unbundling, fuel surcharges, weekly fare increases…anything for more cash.

    You know….come to think about, wasn’t PEOPLExpress (which started in ’81) kinda a proto model for the unbundled air service we’re beginning to see now?

  21. CS says:

    Wow, thanks Dan!

  22. CF says:

    flylbb – Yeah, I’d agree that PEOPLExpress was certainly the model for what we’re seeing now. Of course, they grew way too fast and blew their opportunity, but that model was truly innovative back then.

  23. seth says:

    JetBlue does publish their CASM both with and without fuel. As of 3/31/08 the fuel cost was about 3.5 cents per ASM. At 150 seats and ~2500 miles the fuel cost would have been ~$13K. And fuel costs have gone up since then. That being said, the overall CASM for JetBlue is ~9.5 cents, meaning that “other” costs are also a huge issue for the airline to account for. That being said, the non-fuel CASMs have been going down while fuel CASM has been going up. The airlines can choose to cut some costs, but they still need to tank up the planes.

    @ David: I disagree on whether airlines should be in the business of predicting whether fuel costs will go up or down. They may not be the best at it, since they arguably have other things to do, but if they cannot focus some effort on something that is 30-50% of their costs on any given flight then they shouldn’t be operating an airline.

    http://www.wanderingaramean.com/2008/05/jetblue-aborts-lax-service.html

  24. David says:

    The price of jet fuel comes from 2 things:

    1) Price of crude (I’m treating crude as a homogeneous product – ignoring things like sulphur content)
    2) Cost of refining the crude to separate oils, including jet fuel.

    The cost of refining is really quite small compared to the cost of raw crude. Thus, predicting the price of jet fuel is almost the same as predicting the price of crude oil.

    Because crude oil is such an important product to the world economy, markets are very good at pricing it accurately based on publicly available information – the possibility of easy arbitrage on simple crude oil futures is quite small.

    The oil majors (Exxon, Shell, etc) by virtue of having both oil rigs and wholesale + retail marketing operations, are in a position to play the market on crude, since they have a natural advantage on information. Airlines simply don’t have this advantage.

    An airline should certainly be involved in hedging jet fuel prices to smooth out their risk (and they are active players in this market), but should not be taking direct bets on oil prices. Shareholders buy airline shares because they are a transportation company. If you want to take a bet on oil prices, why not start trading in oil futures directly ?

Join the Conversation