Fuel Impact

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Abstract……………………………………………………………..2 Introduction…………………………………………………………2 Impact of fuel on the airline’s operation and management…………3 Risks and opportunities……………………………………………..6 Biofuel’s emergence………………………………………………...9 Conclusion………………………………………………………….10 List of references

Appendix

Abstract

This project is completed in order to analyze the impact of fuel on the airlines. It studies the operational and managerial decisions that follow the slightest waving of the oil prices, indicates opportunities and threats related to fuel usage. The study reflects how the airlines have succeeded to organize their operations and implement new strategies that let them cut on fuel costs and use it more efficiently. Various fuel-saving techniques and policies are discussed followed by examples of their application by flag carriers. The project also touches on biofuel emerging the aviation industry and major difficulties that are slowing down its worldwide use.

Introduction

Airline business is known for being extremely sensitive to any global event from weather disasters to economic/political crisis regardless of how remote the airline physical location is. ‘Fuel plays major role in modern airline's operating costs. Only a company that does strictly monitor its fuel usage and is aware of the costs can stay in business.’( smart4aviation.aero 2012) Today jet fuel accounts for 40% or more of an operating cost of an airline up from historical change of 10% - 15%. Fuel saving enthusiasm drives the managerial decisions of which aircraft to order, cabin interior design and material choice, sometimes even management style. With its ever-changing nature it will always keep its leaders tense and profits unstable. It has immediate impact on well-being of the airline and its profit/loss statements. ‘Airlines are trying other measures as well to deal with higher fuel costs, including raising fares, adding fuel surcharges to tickets and charging extra for a second checked bag rather than a third.’ (minotdailynews.com 2008) ‘Numerous factors, such as fuelling, weight and balance, flying practices can seriously affect fuel economy. Flight planning phase is also critical in terms of fuel burn - optimizing the amount of additional fuel in tanks, or choosing proper alternates for the route can save more fuel than one might expect. Getting rid of unnecessary goods, too much potable water or other weight would also result in increased yearly savings on fuel costs’. ( smart4aviation.aero 2012)

Impact of fuel on the airline’s operation and management

Aviation is uniquely exposed to peak oil when fuel makes up a huge and volatile part of an aircraft operator’s budget. There is not much that can impact airline operation to the degree that fuel is capable of. The oil price instability has played a key role in airline decisions on everything from increasing of fares to canceling routes to adding baggage fees during the recent years. The reason for is that the fuel cost is the highest amongst all others which left labor costs behind years ago. So when the fuel prices are raising so does the concern of the airlines. According to Platts, RBS, jet fuel in Jan this year is double the price of the same month in 2009. (Appendix ) Apart from being the highest cost fuel is also the most unstable and unpredictable one. There is even a professional joke among aviation enthusiasts that when it comes to problems and disputes for the carriers, fuel costs are number one, two and three. Furthermore a carrier needs to plan the schedules approximately a year in advance. In case the oil price has changed significantly during this period the airline will have to adjust the initial plan and may be even cancel some of the routes. Today the situation with price instability is still more optimistic than it was 5 years ago when the prices last jumped before sinking with the recession . Airlines have various strategies when dealing with this unpredictable...
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