Back in Apr. 19, 2006 – Vice President and Chief Economist John Heimlich from the Air Transport Association provided some perspective on jet fuel and its implications for industry operations and financial performance.
"Simply put, today's jet fuel prices are crushing, and could prove to be a knock-out blow for some. Thanks to the high price of crude as well as a range of issues with refining capacity, product distribution, and market speculation, jet fuel prices have soared. And keep in mind -- unlike other modes of transport, airlines have no alternative to jet fuel. Even before Hurricane Rita landed, we saw two additional bankruptcy filings, not to mention significant reductions in domestic air service. Others may be on the horizon.
Fuel prices are influenced by a myriad of global and local factors, but are heavily correlated with the price of crude oil, which is being driven principally by a robust global economy, increasing supply tightness, geopolitical insecurity, and unique production and demand factors, and, most recently, Hurricanes Katrina and Rita, among other causes.
The technical specifications for jet fuel make it more complex to refine. U.S. buyers have also been somewhat disadvantaged in recent years vs. their foreign counterparts, due to a relatively weak dollar. Beyond the price of crude oil, the price of jet fuel has risen sharply with overburdened refineries, competition with other products in multi-product pipelines and refinery outages".
Increasing supply tightness will continue to increase - this is caused by geology and will not be resolved by the market - hence the disagreements between economists and geologists......at the Australian Petroleum Production and Exploration Association (APPEA) conference in Apr 2005, when attendees (generally industry geologists and engineers from the likes Woodside, Shell, BP etc) were asked by the speaker if we are at or near peak oil, 50% raised their hands in agreement - a worrying sign by anyone's standard!!
Recently James C. May, President and CEO Air Transport Association of America, Inc testafied before the Aviation Subcommittee, Committee on Commerce, Science and Transportation of the United States Senate on September 14, 2005, of interest he said "No business model at any airline can survive with sustained jet fuel prices of $90 - $100 per barrel" sounds like their is some consensus with what the CFO of QANTAS also stated in the Bulletin magazine! He went on to also say that "Every $1 increase in the price of a barrel of crude puts another 5,500 airline jobs at risk". In one of his concluding remarks he stated " we must find and produce more oil in the U.S., including reserves from the Arctic National Wildlife Refuge and the outer continental shelf. Other environmentally concerned nations are tapping into their off-shore oil and natural gas reserves. We must do the same if our aviation network – indeed our entire transportation system – is to remain sound and competitive in the face of growing worldwide demand for oil". Given that this has not be occuring (with the exception of nations like China who are aggressively locking in long term (30yrs+) contracts for the supply of oil and gas - one has to wonder where the airlines are heading in the next couple of years........am glad that I got out of it and am now earning more dollars flying a desk than what I did flying aircraft.........my counsel for what it is worth - is start to set yourselves up for a job outside of the industry as you don't want to be looking for a job when thousands of others are as well.........by the way - I have not read Matt Simmons book yet - however I have head that it is good.