Economist sees 48% explosion in jet fuel costs
Flights are down but purchasing costs have exploded
By Tom Stundza -- Purchasing, 9/12/2008 10:42:00 AM
Jet fuel will cost the domestic airline industry an average $3.20/gallon this year or $59.8billion, up 48% from $2.17/gallon or $41.6 billion in 2007, even though consumption will dip because flights will be reduced for the year by about 6%.
That’s the forecast by John Heimlich, chief economist of Air Transport Association, at the Aerospace Materials Outlook & Forecast seminar in Philadelphia sponsored by the Basic Industries Group of New York. Historically, fuel expenses have ranged from 10% to 15% of U.S. passenger airline operating costs, he says, adding that they currently are running between 35% and 50%.
So, through July, the airlines were paying an average $3.28/gallon. Heimlich sees slippage back to $3.20 for the year since he reckons the current slippage in crude oil prices will translate into slightly lower fourth quarter jet fuel prices. “A fall to $100/barrel crude oil this month will reduce downstream jet fuel pricing but only a little,” he says, “since the petroleum refining industry continues to operate at less than 90% of existing capacity.” He pins that on reduced gasoline and diesel demand and the cutbacks in refining by the oil companies to keep from overbuilding inventory.”
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