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ATA notes the challenges of volatile fuel costs

10-Mar-2011 12:26 PM

American Transport Association Vice President and Chief Economist John Heimlich noted (09-Mar-2011) the impact of jet fuel on US airlines, stating: "Having the airlines’ largest cost center remain so volatile makes business planning extremely difficult."  [more]

ATA: "In 2011, airlines have been contending with rapidly climbing jet-fuel prices that have outpaced crude-oil prices to reach their highest level since September 2008. As of 04-Mar-2011, US Gulf Coast jet fuel sold for USD3.20 per gallon. Excluding hedge gains or losses, if US airlines had to contend with USD3 per gallon jet-fuel prices for all of 2011, their fuel bill would increase USD15 billion, from USD39 billion in 2010 to an estimated USD54 billion in 2011. The cost of jet fuel is typically an airline’s largest cost center. Annually, a 1 cent increase in a gallon costs US airlines USD175 million; a USD1 increase in a barrel costs them USD415 million. To put this into some context, in 2010, U.S. airlines posted an estimated net profit of USD3 billion with a meager 2% margin, one of only three profitable years in the entire decade. From 2001-2010, US airlines had a cumulative net loss of approximately USD54 billion ... From the end of 2009 to the end of 2010, the price of jet fuel rose 44 cents per gallon. From the end of 2010 to the week ending 04-Mar-2011, the price of jet fuel rose 67 cents per gallon. When jet-fuel prices rise rapidly, airlines have limited options to mitigate these costs, principally generating more revenue or decreasing non-fuel expenses. As fuel prices increase, flights become less profitable so airlines may also reduce capacity, and some carriers already have reported downward growth plans. Unfortunately, fuel-hedging programs are increasingly expensive and provide only limited protection when jet-fuel prices are outpacing crude-oil prices," VP and Chief Economist, John Heimlich. Source: Company Statement, 09-Mar-2011.