Surviving the Fuel Crunch: a Review of Available Operating Cost Reduction Measures

By Bridget Ssamula
The aviation industry is facing a looming crisis with spiraling fuel costs. For the first time ever, fuel replaced labor as the largest single cost item for the global airline industry in 2006. Based on a sample of the financial reports of 45 major global (passenger) airlines, fuel accounted for 25.5 per cent of total operating costs in 2006, up from 22.5 per cent in 2005. The rise in the fuel price reflects a sharp increase in the price of crude oil over the period, but also reflects a widening in the refinery margin between crude oil and jet fuel, largely due to capacity constraints at refineries. The widening of the refinery margin alone added an extra US.7 billion to the industry’s fuel cost in 2006. IATA shows that jet fuel prices have increased by 100 per cent based on April 2007 week’s prices. (IATA, 2007) Read more of this post

Column: Hedging Fuel Costs in the Airline Industry

Fuel costs comprise a major portion of operating expenses in the airline industry. For most airlines, it is the second largest expense category behind labor. Thus when oil prices nearly double, as they have between 2004 and 2005, dramatic increases in jet fuel costs can create havoc with an airline’s profitability. Read more…

Download article here.

%d bloggers like this: