How have fuel prices affected the airline industry?

Fuel costs have traditionally been the second-highest operating expenditure for an airline behind only wages. The historical average is 10 to 15 percent of an airline's overall operating costs. In 2008, when crude oil was selling at $125 a barrel, fuel accounted for 35 percent of airline operating costs.

One Example

Back in February of 2008, Jet Blue announced plans for several new routes from the Northeast to Los Angeles. Crude oil was hovering around $90 a barrel. When the price rose by 30 percent a few months later, Jet Blue canceled its plans for the new routes. The cost to operate the flights before the price increase was $9,600. The price after the increase was $15,000.

Weight

The heavier an aircraft is (payload plus fuel) the higher the fuel burn. So there is a penalty to carrying extra fuel in the tanks. When fuel is expensive, airlines look for ways to cut back on the amount of fuel they purchase. One way to reduce fuel costs is to carry only the legal amount required for a particular flight. This has resulted in an increase in diversions for fuel because of limited reserves.

Tipping Point

An airline's survival can depend on the price of fuel. One recent airline, Skybus, had the misfortune of starting operations right at the time when fuel prices were skyrocketing and the economy was declining. When they began operations in 2007, Skybus had placed the largest order for new aircraft for any startup in history.

Fuel Price Monitoring

When fuel prices are high, airlines will do whatever is necessary to reduce costs. This includes providing pilots with fuel price information. The idea is that an informed pilot may choose to buy more fuel at an airport where the price is significantly cheaper, as long as there is not a negative impact due to the increased weight. Dispatchers can provide pilots with this type of cost/benefit analysis on request.

Slower Cruise Speeds

Another way to burn less fuel and thus reduce costs is to fly slower. When crude oil was selling at $140 a barrel, reducing cruise speeds just a few knots led to significant savings in fuel costs.

Source:

Airlines.org: Energy/Fuel

Portfolio.com: Flying on Empty

USA Today: Skybus Airlines to Cease Operations

More Information:

MSNBC: Airlines Slow Flights to Save on Fuel