Oil Wil Remain High For A Longer Period!

[boeing787]

So what is the plan?Outsource to express, shrink, who has a real answer to a serious industrywide problem?

By the way what is the business model at U planned on for a price for a barrel of oil? I believe SWA is 26 and UAL is in the low to mid 40's now.

 

[Tim Nelson]

So what is the plan?Outsource to express, shrink, who has a real answer to a serious industrywide problem?

By the way what is the business model at U planned on for a price for a barrel of oil? I believe SWA is 26 and UAL is in the low to mid 40's now.

[post="251292"][/post]​

Saw one report that said with the new iraqi oil pipeline bombings late Friday that oil has nowhere to go but up. One internet report had instability = perhaps $55-60 a barrell.

IMO, it won't change a thing but expedite the inevitable. If US AIRWAYS intended to go chapter 7 then it will happen faster. If it intended to come back for more labor cuts and claim ATSB loan covenents then it will happen faster. If someone intended to buy USair then that will happen faster.

I don't know dudes, I just don't see anything competitive going on right now so my gut feeling is that workers will be asked to give more.

regards,

 

[BoeingBoy]

I know that USA320Pilot keeps saying that the transfromation plan is based on $44 per barrel oil, but that is untrue - as I have pointed out to him. The correct figure is $44 per barrel fuel.

The company's exact words:

"The Debtors’ baseline projection is based on the assumption that fuel will cost $44.00 per barrel through April of 2005. During the last 3 months, fuel costs have ranged from approximately $37.50 to $48.00 per barrel. Every $1 per barrel increase over the plan costs the Debtors approximately $2 million per month."

As of the 18th of Feb, spot prices for jet fuel were flirting with $60 per barrel.

Jim

 

[N924PS]

I know that USA320Pilot keeps saying that the transfromation plan is based on $44 per barrel oil, but that is untrue - as I have pointed out to him. The correct figure is $44 per barrel fuel.

The company's exact words:

"The Debtors’ baseline projection is based on the assumption that fuel will cost $44.00 per barrel through April of 2005. During the last 3 months, fuel costs have ranged from approximately $37.50 to $48.00 per barrel. Every $1 per barrel increase over the plan costs the Debtors approximately $2 million per month."

As of the 18th of Feb, spot prices for jet fuel were flirting with $60 per barrel.

Jim

[post="251396"][/post]​

FED EX and UPS have fuel surcharges. Why can't the passenger airlines do the same?

 

[usairways_vote_NO]

FED EX and UPS have fuel surcharges. Why can't the passenger airlines do the same?

[post="251412"][/post]​

Because then they couldn't wring out employee costs cuts rounds?

 

[mweiss]

FED EX and UPS have fuel surcharges. Why can't the passenger airlines do the same?

[post="251412"][/post]​

At one time, they did.

Why not now? WN's hedges are a big part of the answer.

 

[javaboy]

i disagree.

first oil is what is commonly used as the "benchmark" for energy prices. and yes it does have a correlation to jetfuel prices. however another factor to consider are the refineries. Jetfuel is just about the smallest profit margin when you talk about what the output of the refineries are. in otherwords they are going to "make hay while it is prudent to do so" or if you will they (the refiners) will continue to produce the most of the highest margin product (namely gasoline products). which means there is less jetfuel capacity period. so even if OIL falls it may or may NOT equate to a price drop in jetfuel. this is what needs to be managed.

of course no airline will be entering hedges at these prices because they are being told that the prices will be cheaper in the future then it would be more prudent to do so, observe the SWA and JB's of the world when you see them ENTER into NEW hedges then you can figure the price is nearing equillibrium.

i do not believe oil prices are sustainable much above 50 for very long. to OPEC it is the killing the golden goose. every time the US economy slows down billions are lost in revenues that are not generated due to "cutbacks" basically in consumption due to price increases across all industries not just the airline business.

OPEC increased production and oil prices began to receed from the previously achieved 50 dollar level in during the 4qtr of 2004, as expected the US economy then proceeded to grow at an above average clip above 3.0% these numbers revised UPWARD last week. now with OIL where it is now, the GDP will slow again in Q1, and you will begin to hear about the weather in the NE of country driving home heating oils and engergy prices up in general, which could cause the slow down as well as inclimate wx slowing any spending including both durable and non durable goods.

So OPEC is smarter than most give credit for (they appear as bickering groups) yet when all is said and done their combined incomes of money were much higher when oil was sub 40 than above 45. nothing happens fast on a global scale but i believe the trend after peaking in the demand of q1 will see oil prices retreat. (this is against what T Boone Pickens is betting) as well i suspect CHINA's growth will slow causing currency traders (see Jimmy Rodgers) to backpeddle a bit.

If this is even partially true, then things should improve not only for the US economy but the airline industry as well. This will be reflected in the ablity to gain some pricing strength and the latest price increase will most likely stay. and a 2nd one if not fuel surcharges would be expected some time about late april if this happens then due to improving revenue pictures and declining oil prices airlines will see ratings improve which inturn will garnish small upgrades in certain airline stocks.

thank you for your time.

🙂

 

[CynicalResAgent]

WN has added the winglets to their 737's which are supposed to increase the fuel efficiency. I cannot remember the numbers but the savings are supposed to pay for themself after a certain number of years. I read that probably 2 years ago, maybe more but fuel was much less expensive.

I would imagine for every dollar that fuel goes up the time it takes for the savings from modifications to pay for themself should go down. I could understand why U would not do the modifications before but now with the cost of oil almost double what it was I see no reason why all legacy carriers are not making that modification.

Does anyone have infromation on how much the mod increases fuel efficiency?

 

[BoeingBoy]

Boeing claims 3-4% lower fuel burn on segments over 1000 miles.

Jim

 

[FWAAA]

FED EX and UPS have fuel surcharges. Why can't the passenger airlines do the same?

[post="251412"][/post]​

Even AMR has successfully implemented fuel surcharges on cargo.

The problem with passenger seats is excess capacity. It doesn't matter how expensive fuel gets - none of that matters when there are too many seats and too many airlines desperate for cash. USAir and UAL are two current examples of very desperate airlines.

 

[a320av8r]

AA, DL, CO are some more examples of desperate airlines...

 

[jimntx]

AA, DL, CO are some more examples of desperate airlines...

[post="251780"][/post]​

Yes, but AA is desperate with $3 billion in the bank. CO is desperate with new TAs from all its major unions arrived at amicably and privately. Not exactly the same kind of desperate as UAL and UAIR.

 

[jimntx]

i disagree.

first oil is what is commonly used as the "benchmark" for energy prices. and yes it does have a correlation to jetfuel prices. however another factor to consider are the refineries. Jetfuel is just about the smallest profit margin when you talk about what the output of the refineries are. in otherwords they are going to "make hay while it is prudent to do so" or if you will they (the refiners) will continue to produce the most of the highest margin product (namely gasoline products). which means there is less jetfuel capacity period. so even if OIL falls it may or may NOT equate to a price drop in jetfuel. this is what needs to be managed.

[post="251449"][/post]​

Don't assume that production of gasoline vs jet fuel is an either/or proposition. Oil refining is a lot more complicated than that. If they are "coking" the crude oil, several products may be produced at the same time. Some or all of them may require additional refinement, but the basic products all appear as the result of a single pass through the cracking unit. (I may have some of the terminology wrong. 18 years in the oil business as an IT person allowed me to pick up a lot of terms without necessarily picking up the ability to use them in the right context. )

However, you are right in that the oil companies will, for the most part, direct their efforts to the most profitable segments of their business. Who wouldn't? However, it ain't necessarily as flexible as it might appear. For instance, home heating oil for the Northeastern US is produced, transported, and stored during the summer months. If there is a home heating oil shortage in the middle of the winter, it's not just a case of turning a switch and producing more. And, even if you could, you still have to transport it from the Gulf Coast to the NE.

 

[BoeingBoy]

As of the 18th of Feb, spot prices for jet fuel were flirting with $60 per barrel.

[post="251396"][/post]​

Thought I'd update this since the DOE updated their report this morning....

On 2/25/05, spot jet fuel prices were:

NY Harbor - $1.4840 per gallon ($62.33 per bbl)
Gulf Coast - $1.4625 ($61.43)
Los Angeles - $1.6196 ($68.02)

On the same day, crude was:

WTI - $52.20 per bbl
Brent - $50.05

For comparison, today's crude prices per Bloomberg:

WTI - $51.83 per bbl
Brent - $51.05

Jim

 

[FWAAA]

I know that USA320Pilot keeps saying that the transfromation plan is based on $44 per barrel oil, but that is untrue - as I have pointed out to him. The correct figure is $44 per barrel fuel.

The company's exact words:

"The Debtors’ baseline projection is based on the assumption that fuel will cost $44.00 per barrel through April of 2005. During the last 3 months, fuel costs have ranged from approximately $37.50 to $48.00 per barrel. Every $1 per barrel increase over the plan costs the Debtors approximately $2 million per month."

As of the 18th of Feb, spot prices for jet fuel were flirting with $60 per barrel.

Jim

[post="251396"][/post]​

Like you, I am a fan of precision in communications. That said, are you certain that someone at U didn't mispeak (miswrite) when it said "fuel will cost $44.00 per barrel . . . "?? If someone just wrote sloppily, then they might have really meant "oil" at $44/bbl and not jet "fuel."

Anyway, excellent discussion.