Price of Aviation Fuel and its Impact on Airlines
Aviation Fuel
One of the factors that affect airline operating costs is the price of aviation fuel. The price of aviation fuel is an external economic factor over which airlines have little control. Airlines accept that they can do little to control the price of aviation fuel. They just accept this as more or less given and mitigate its impact through negotiations with service providers or fuel suppliers.
The part of aviation fuel at any airport depends partly on the companies supplying the fuel and partly on the government of the country concerned. As far as the fuel companies are concerned, the prices of crude oil and of refinery costs are broadly similar worldwide. However, distribution and handling costs vary considerably. While oil refineries are widely scattered around the world, only a relatively small number of refine jet fuel. The supply of fuel to some airports may involve lengthy and costly transportation especially if the airport is well away from seaport. Transport costs also rise if the total volume of fuel supplied to an airport is small. Handling costs of airports vary in relation to the facilities used and the volume of fuel uplifted. Governments may influence the price of jet fuel in two ways. they impose import duties or some other kind of tax. Some governments may also try to control or fix the price of fuel as a matter of policy.
The fluctuating exchange rates may also adversely affect some airlines, since fuel process in most parts of the world are quoted in US dollars. If the dollar exchange rate of a particular currency drops rapidly, the cost of fuel in that county in terms of its own currency will rise equally rapidly. This will hit hardest the country’s own national airline, most of whose earnings will be in local currency.
How do Airlines cope with Fuel Prices?
While able to influence the basic price of fuel only marginally, airlines can lower their fuel costs by trying to reduce their fuel consumption. A number of options are open to them. They can try and reduce the weight of their various aircraft by using lighter equipment in the cabin, and less paint of the fuselage. They can also reduce weight by avoiding unnecessary ‘tankering’, that is, carrying more fuel than is required to meet safety minima on a particular sector. Then they can save fuel by reducing the aircraft cruising period. Computerized flight planning can also help. By choosing slower rates of climb or descent and higher cruise altitudes, where available, airlines may be able to further reduce the fuel consumed. But ultimately the biggest savings come from switching to newer more fuel-efficient aircraft, especially where one can replace three or four-engine jets by aircraft having fewer and more advanced engines (Doganis 2002).
Improving Fuel Efficiency
Airlines around the world are taking measures to conserve energy and to improve fuel efficiency. Airlines are employing single-engine taxi procedures on normal operations and employ selective engine shutdown when there are ground delays. Airlines are also taking measure to reduce and measure accurately onboard weight. Airlines also tanker extra fuel on long flights in order to avoid refueling at locations where fuel price is high. Airlines are also planning fuel usage more accurately. Airlines are modernizing their fleets and replacing old aircrafts with more fuel efficient ones. Airlines are also investing in winglets to cut aircraft drag, thereby decreasing fuel consumption. Airlines are also using airport power rather the onboard auxiliary power units (APUs) when at the gates (Air Transport Association of America 2008).
Australia
In Australia, Airlines with the help of Airservices Australia make use of the winds on their routes causing reduction in flight times and savings on fuel. Airservices Australia has launched ‘Flex Tracks’ which aims to help airlines to cut flight times and save up on fuel (Thomas 2006).
Airservices Australia is an Air Navigation Service Provider that aims to provide safe and efficient services to customers. One of the services that Airservices Australia is helping airlines to find ways to save on fuel. Airservices Australia’s ‘Whole of Flight’ initiative aims to provide fuel friendly air traffic services to airlines. Fuel savings can be realized through the traffic services provided throughout all phases of flight. Below are some of the proposed strategies that will reduce fuel consumption on the different phases of flight.
Departure Phase
- Minimized Runway holding time with Estimated Airborne Times
Enroute Phase
- Flex Tracks and User Proffered Routes
- Optimum Flight Levels
- Flight Planning and Tracking Review
Arrival Phase
- Preliminary Landing Times (PTL)
- Speed Control over Vectoring
- Tailored Arrivals (Air Services Australia 2005)
Hong Kong
In order to reduce fuel consumption and to lessen the impact on the environment, Cathay Pacific one of Asia’s biggest airlines has commit itself to fleet modernization. Cathay Pacific acquired Boeing 777-300ER and Boeing 747-8F which are more fuel efficient. Older less efficient aircraft are being replaced (Cathay Pacific Annual Report 2007). In order to cope with the surging fuel prices, Cathay Pacific is considering cutting routes.
United States
In the United States, airlines are starting to fly slower in order to save on fuel. Southwest Airlines are among the airlines in the United States that implement this strategy. United Airlines is another example. United Airlines invested in flight planning software which enables pilots to choose the best routes and speeds. According to United Airlines, they aim to save fuel by flying at a more consistent speed. Airlines are also trying other strategies to cope with the rising fuel costs. These strategies include raising fares, adding fuel surcharges to tickets and charging for a second checked bag rather than a third (Wilen 2008).
Still in the United States, airports, such as San Francisco International Airport are going green in an effort to reduce adverse impacts on the environment and to save on energy. San Francisco International Airport has a full program that involves the enhancing air quality, reduction of noise, conservation of water, reduction of solid waste, recycling and energy efficiency measures. The airport also help airlines in reducing fuel consumption. At its gates, San Francisco International Airport gives airlines the option of getting two power feeds directly from the airport itself: preconditioned air and ground power. This option allows the airlines to avoid using their own auxiliary power, thus saving fuel and money (Hewit 2007).
United Kingdom
In an effort to cope with the increasing fuel prices, British Airways, UK’s premiere airline, has announced to increase its fuel surcharge on all tickets. The decision reflected continuing high oil prices (British Airways: Investor Relations 2008).
Saudi Arabia
Saudi Arabian Airlines, one of the biggest airlines in the Middle East is acquiring new aircrafts that are more fuel efficient. Saudi Arabia Airlines, through negotiations with Saudi Aramco, receives fuel at a domestic discounted price (Rahimi 2008).
Africa
Airlines in Africa are most affected by the increase in fuel prices. In the midst of fuel price hikes, Kenya Airways was forced to lay off its staff. Because of the increasing fuel prices, Kenya Airways has been looking for ways to alleviate the adverse impact of its rising fuel and operational costs. One strategy that was implemented was the streamlining of the organization chart which led to the laying off of 23 staff mostly holding managerial positions (Afriqunligne 2008). A leading budget carrier in South Africa, Nationwide Airlines was forced to suspend its flights because of the increase in fuel prices.
France
Air France KLM also tries to mitigate the adverse effects of fuel price hikes by increasing their fuel surcharges.
Japan
Japan Airlines mitigate the impact of rising fuel prices by acquiring more fuel-efficient aircrafts. Japan Airlines have contracted Boeing in order to acquire Boeing’s 787 Dreamliner which is considered to be more fuel efficient.
References
Airservices Autralia Fuel Saving Initiatives ‘From the Ground Up’ (2005). Airservices Australia. Retrieved May 22, 2008, from
http://www.airservicesaustralia.com/customer/industrybriefings/waypoint/2005/Fuel_Friendly.pdf
Annual Report (2007). Cathay Pacific Airways Limited. Retrieved May 22, 2008, from http://downloads.cathaypacific.com/cx/investor/2007_Annual_Report_en.pdf
Doganis, R. (2002). The Economics of International Airlines. London: Routledge.
Fuel Efficiency: US Airlines (2008). Air Transport Association of America. Retrieved May 22, 2008, from
http://www.airlines.org/economics/energy/fuel+efficiency.htm
Hewitt, W. F. (2007). The Only Way to Fly: Airports and Airlines Are Going Green-Partly on Principle and Partly Because It Makes Good Business Sense. Planning, 73(10), pp. 22+.
Investor Relations (2008). British Airways. Retrieved May 22, 2008, from
http://www.bashares.com/phoenix.zhtml?c=69499&p=IROL-index
Kenya Airways Lays Off Staff as Fuel Price Hikes Bite (2008). Afriquenligne. Retrieved May 22, 2008, from
http://www.afriquenligne.fr/news/africa-news/kenya-airways-lays-off-staff-as-fuel-price-hikes-bite-200805174086.html
Rahimi, S. (2008). Fuel Consumes 45% of Cost for Sama Airlines. Middle East Business Information. Retrieved May 22, 2008, from
http://www.zawya.com/marketing.cfm?zp&p=/Story.cfm/sidZAWYA20080510050336/secIndustries/pagTransport?cc
Thomas, G. (2006). When Saving Jet Fuel is a Breeze. The Australian Business. Retrieved May 22, 2008, from
http://www.theaustralian.news.com.au/story/0,20867,19104735-23349,00.html
Wilen, J. (2008). To Save Fuel, Airlines Move to Slow Lane. International herald Tribune. Retrieved May 22, 2008, from
http://www.iht.com/articles/2008/05/02/business/air.php
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