When is Cheap Fuel Bad News?

After months of moaning about fuel prices every airline should be turning cart-wheels as fuel prices dip. Oddly enough, if you're American Airlines, United Airlines or Continental Airlines those lower fuel prices are not great news because you hedged on fuel last quarter at costs that are actually higher than current. Reuters has a good article that lays it out nicely. In summary, the oil companies are thanking these airlines for pre-buying a bunch of fuel at peak prices. So the benefit of this respite in fuel prices is somewhat muted for American, United and Continental. I was surprised to see Continental got caught in this gamble. Continental has stated in the past that they simply do not hedge on fuel. Smackdown quote goes to CreditSights airline analyst Roger King, "It was a complete blank-out on the basics of business management, Business school 101 says you have to hedge uncontrollable costs." Yeah...what he said.

Every Penny Counts When it Comes to Fuel Costs

Everybody knows that fuel costs have bashed the airline industry...its been beaten into our heads repeatedly. So when the military launches a project to test a new 50/50 blend of synthetic fuel/jet fuel the airlines obviously are going to sit up and watch closely. What shocked me in this article was some of the statistics that the Airline Transport Association have put out regarding the true impact of fuel costs. Here are some fun facts:
-Jet fuel jumped from an average of 75 cents a gallon in 2001 to $2.01 last year, when U.S. airlines spent more than $33 billion on fuel...
-Fuel now accounts for about 30% of the industry's operating costs, compared with about 10% five years ago
-Estimates every penny-a-gallon increase in fuel prices adds $195 million in overhead to the industry. Many airlines are passing along the cost, up to $100 for each passenger in some cases.

Its noted in the linked article that the cost to produce this synthetic blend is high but if prices remain at $60+ per barrel then it may make economic sense. Every airline in the world has there fingers crossed.