Airline Fuel Crisis


Nov 9, 2003
Airline Fuel Crisis
Fuel Crisis Forces Airlines To Conserve, Drop by Drop
Aviation Week & Space Technology
12/06/2004, page 54

Joseph C. Anselmo

Battered by high fuel prices, airlines are scraping to save every penny. For some, innovative solutions are a matter of life or death.


Continental Airlines recently loaded an extra 10,000 lb. of jet fuel on a flight from Houston to Cancun, Mexico. With prices running 17 cents a gallon cheaper in Texas, Continental managers calculated it would be less expensive to haul the fuel to Mexico for the return flight.

They were right. Even accounting for the cost of transporting the additional fuel, the airline still generated a savings: a whopping $112.

No savings is too small these days in the global airline industry, where an unforeseen spike in crude oil prices has added billions of dollars to fuel tabs and forced carriers to turn to innovative--and sometimes desperate--measures to cut consumption, drop by drop.

British Airways now sells inflight duty-free alcohol in plastic bottles instead of glass to cut down on weight. Alaska Airlines counts the number of children on each flight and then reduces the amount of fuel it loads accordingly. And American Airlines closely monitors its ground crews to make sure they pump exactly the fuel ordered--and not a gallon more.

Across the board, airlines are adopting a wide range of fuel-saving measures, such as adding winglets to reduce drag, taxiing on a single engine, mapping more direct routes and curtailing the use of fuel-hogging auxiliary power units (APUs) while parked at the gate. While some of these practices have been in use for years on an ad-hoc basis, they are being implemented now with a new urgency across the industry as airlines cope with high fuel costs and cutthroat competition. For successful carriers, it's a matter of improving the bottom line to remain profitable. For struggling airlines, it's a matter of life or death.

"Sometimes you need to go back to the basics," says David Castelveter, spokesman for US Airways, which is operating under bankruptcy protection. "You forget the obvious. Every dollar of savings to this company is important."

Indeed, the dollars add up in an industry that consumes more than 50 billion gallons of fuel worldwide each year. Continental's $112-per-flight savings on its Houston-Cancun route is part of an initiative aimed at saving $8 million a year by purchasing extra fuel at lower cost airports. American expects to conserve $15 million a year from a similar initiative. And Delta Air Lines says a new flight planning system designed to calculate the most efficient routes and altitudes will yield at least $5 million a year in savings.

BUT WITH FUEL the airline industry's second biggest expense after labor, such initiatives only begin to chip away at the devastating impact of surging crude oil prices. Jet fuel prices are up about 50% since the start of the year and have doubled in the last three years. American and United Airlines say they will spend $1 billion more on fuel this year than they had projected in January.

Airline executives are desperately hoping that crude oil prices, which peaked at $55 a barrel in November, will settle down in 2005. "Is there any airline with a business model that will work if the current situation with high fuel prices and industry overcapacity continues?" asks America West CEO Douglas Parker.

That's a good question, since some economists believe that even if fuel prices ease significantly the relief would be short-lived. Philip K. Verleger, Jr., of the Institute for International Economics predicts crude oil prices could hit $60-70 a barrel within two years, up from an average of $31 a barrel in 2003 and $26 in 2002. Part of the problem is surging demand from China and India, which have doubled their share of the world's oil consumption since 1990 to 10%.

The global commercial aviation industry is projected to consume more than 50 billion gal. of fuel this year. Runway "traffic jams" are a major source of wasted fuel.Credit: JOSEPH PRIES

"It's quite possible the Chinese economy will quadruple in 20 years," Verleger says. "That's a huge growth in oil demand."

To be sure, such gloomy forecasts are not universal. UBS Investment Research airline analyst Robert N. Ashcroft predicts oil prices will settle down to $30 a barrel by 2007. Moreover, airlines and airplane manufacturers continue to make strides in fuel efficiency. Improvements in aircraft engines, aerodynamics, composites and operations have reduced the amount of energy needed to carry a passenger 1 mi. by about 50% since 1972, according to Massachusetts Institute of Technology Prof. Ian Waitz.

Carriers such as Southwest Airlines have been able to greatly reduce their exposure by purchasing hedges--essentially an insurance policy that protects against oil price spikes (AW&ST Oct. 25, p. 19).

But that's little comfort to struggling airlines, which lack the cash and healthy credit ratings to secure hedges or order newer, more fuel-efficient airplanes (see p. 60). Such carriers cannot cut costs quickly enough to offset the rise in oil prices. Analysts say the high price of oil could be the knockout blow for airlines in the most dire shape.

"It's nothing short of crushing," says John Heimlich, chief economist at the Air Transport Assn. "In my opinion it's going to be the primary determinant of the pace of airline consolidation."

This year's oil shocks have intensified pressure on airlines to find short-term solutions that can yield immediate fuel-efficiency improvements. "You can save a lot of money by just being able to save a couple tenths of a penny per gallon," says Robert Myrben, vice president of fuel management at Southwest.

Among the near-term steps airlines are taking:

*Better flight planning. Singapore Airlines and Air France are among the many carriers plotting "optimum trajectories"--ways to make routes as direct as possible and shorten approach paths. Airlines also are developing more sophisticated flight planning software that can better calculate the effects of wind and weather patterns. "The straight line distance is not always the quickest and the most fuel-efficient," says R. John Hansman, director of MIT's International Center for Air Transportation.

*Fly smarter. Airlines are stressing fuel-efficient descent patterns with engines at idle, for a continuous descent whenever possible, even though ATC is often forced by traffic congestion to impose level-offs or route amendments that burn more fuel (see p. 58). Carriers also are increasing use of onboard flight management systems to calculate optimum fuel use. Delta expects to save $5 million a year through better FMS use. "If you just let the FMS do its thing, it will save a lot more fuel," says Lisa Duval, the carrier's general manager for fuel and air traffic management.

*Reduce bottlenecks. Airlines with big hub operations have a large number of airplanes arriving and departing in a short period so passengers can make connections. But they often find their aircraft stacked up in traffic jams on the runway, wasting precious fuel as they wait to take off. Starting in January, Delta will reorient traffic at its Atlanta hub so flights are spread more evenly throughout the day. US Airways has won permission from the FAA to utilize a shorter and little-used runway at its Philadelphia hub to reduce bottlenecks.

*Minimize APU use. Fuel-powered APUs, which are used to run the air-conditioning system of an aircraft parked at the gate, are eight times more costly to operate than electricity. Airlines are installing electrical hookups at the gate to power fans and minimize APU use. American expects to save $41 million a year with a new policy instituted Nov. 15 that instructs ground crews to leave APUs off whenever possible.

*Better monitoring and maintenance. Airlines stuck with older aircraft need to ensure they're operating as efficiently as possible. American expects to save $11 million a year by closely monitoring the performance of each aircraft, inspecting those not performing optimally and making repairs. One example: A tiny dent half the diameter of a U.S. dime found on the leading edge of an MD-80 wing. Steve Chealander, an American pilot who manages the carrier's flight efficiency efforts, says he exclaimed: "There's no way that's affecting the fuel mileage of this airplane. But it was."

Southwest is developing fuel-management software that will allow it to track consumption and purchase information each day. "In the past it was more of reconciliation on a monthly basis," says Myrben. And airlines need to be sure front-line employees--pilots and ground crews--understand the urgency of making fuel savings a priority.

*Add winglets. Southwest is retrofitting its Boeing 737-700s with blended winglets, which are attached vertically to the end of a wing to improve its aerodynamic efficiency, cutting fuel consumption by 3%. The airline plans to have winglets on 205 aircraft--its entire 737-700 fleet--by March. Continental is installing winglets on 12 of its 737-800s.

*Reduce reserves. American and Continental have won permission from the FAA to halve the amount of reserve fuel they must carry for the scheduled route of some international flights. Airline executives argue that the old reserve requirement of 10% was based on 1950s-era aircraft that did not have today's sophisticated navigation systems. American expects to save $11 million a year from the change, which does not alter other reserve requirements, such as extra fuel to keep an aircraft in a holding pattern. Domestically, airlines also are looking at reducing the amount of reserve fuel they must carry by finding closer "contingency" airports--where an aircraft could land in case of bad weather or an emergency.

*Pass the burden. In the hyper-competitive U.S. market, airlines have largely been unable to pass fuel price increases on to their customers. But non-U.S. carriers such as British Airways, Air France-KLM and Australia's Qantas have been more successful at imposing fuel surcharges. BA expects passenger and cargo fuel surcharges to generate $300 million in the fiscal year ended Mar. 31, 2005. In October, the carrier increased its passenger fuel surcharge to $7.50 for short flights and $18.80 for long-haul flights. Air France-KLM says surcharges will cover 50% of its increased fuel tab.

If high oil prices continue, fuel hedging could be a huge differentiator between those airlines that succeed and those that founder. Thanks to the $25 million a year it spends on hedging, perennially profitable Southwest has secured 80% of its fuel through 2005 at $24-25 a barrel and maintains significant hedges through 2007. By contrast, airlines such as Continental, Northwest, American and Delta will have minimal or no fuel hedge protection next year.

Also exposed is Independence Air, which based its business plan to become a free-standing low-cost airline on $30 a barrel oil. Independence is now fighting to stave off bankruptcy.

Asian airlines are generally less anxious than their Western counterparts, but analysts say a lack of significant hedging could hurt carriers such as Thai Airways, Korean Air, Asiana, Cathay Pacific, China Southern and China Eastern if high oil prices continue in 2005.

MIT's Hansman worries that the industry's relentless focus on short-term cost cuts is distracting airlines from focusing on long-term initiatives that could yield even more gains in fuel efficiency.

"It's kind of hard to look far downstream at return on investment," he says. "These guys are struggling to try to figure out what it's going to take to make it through the next few months."

Neelam Mathews in New Delhi, Douglas Barrie in London, Pierre Sparaco in Paris and Anthony L. Velocci, Jr., in Phoenix contributed to this report.


Facing a $1-billion increase in its fuel tab, American Airlines is trying to eke out savings wherever it can. Among the initiatives undertaken by the world's largest airline:

Plug in. Lower usage of fuel-hungry auxiliary power units, which run air conditioning when a plane is on the ground, and use electricity, which costs 1/8 as much.
Estimated annual savings: $41 million

Better seconds: Find closer alternate airports for landings in emergency or bad weather, requiring less reserve fuel. Estimated annual savings: $14 million

Price shopping. Load up planes with extra fuel in lower-cost markets such as Texas to avoid filling up in higher-priced areas such as California. Estimated annual savings: $15 million

Cut reserves. Reduce reserve fuel carried on international flights from 10% to 5%, with FAA approval. Estimated annual savings: $11 million

Monitor performance. Closely monitor the fuel efficiency of each airplane and examine those that are not performing as expected for wing damage and other problems. Estimated annual savings: $11 million

Balance the load: Carefully distribute weight of passengers to achieve fuel-efficient center of gravity. Estimated annual savings: $5 million

Single-Engine Taxi: Use one engine to taxi whenever safely possible. Estimated annual savings: $2-3 million

Do it right. Closely monitor ground crews to make sure they are paying attention and loading the precise amount of fuel prescribed--and not a gallon more. Estimated annual savings: $1 million

Source: American Airlines
Gee, don't you wish they could. The airline who is driving oprice right now is Southwest and they are hedged around $24 until mid 2006. If your airline wants to raise prices, go right ahead. I will warn you to start looking for a new job because your employer will get crushed.
Question: Why aren't these cost-savings measures already in place?

Answer: Evil union contracts! :lol:
from the article ........
They were right. Even accounting for the cost of transporting the additional fuel, the airline still generated a savings: a whopping $112.

No savings is too small these days in the global airline industry, where an unforeseen spike in crude oil prices has added billions of dollars to fuel tabs and forced carriers to turn to innovative--and sometimes desperate--measures to cut consumption, drop by drop.

odd how its important to save $112.00 yet a CEO salary in excess of $400,000 isnt worth a 10% pay reduction because ,"it wouldn't amount to much" or the 7.0million in bonuses to just 2 executives?

see how one company focuses on 112.00 to save a company and the other feels differently above a certain pay grade??.....

just an observation