Oil price - impact on operations?

[Turkeyslapper]

Like most people I have been watching with concern the price of oil rapidly increasing with $200 US pesos a barrel almost sounding like a certainty.

I don't know too much about profit margins and the detail in operating costs, but at what point are we going to see a real impact on operations and the economic viability of a lot of aviation providers? Is it all doom and gloom and do I need to find another career ? :eek:

Turkey

[fireflybob]

Don't worry, the price of oil will go down when the world starts buying less of it.

[powerstall]

uhm... well... we could always pass it on to the passengers as FUEL SURCHARGE.... :ugh:

[bobmij]

Buy less of it! Ha ha, that's a good one. Take a look at the stats for China's projected demand plus the rest of a rapidly developing third world and let me know when we can expect that.

For those interested in this topic (which should be everybody) check out this series on oil done by the BBC. Very sobering.

http://www.bbc.co.uk/radio4/science/crudefacts.shtml

[Faire d'income]

Don't worry, the price of oil will go down when the world starts buying less of it.

That would be the case if oil had risen only because of demand.

Unfortunately oil has become the investors favourite commodity to hedge against the slow collapse of the US dollar.

When oil reaches $140 a barrel every airline in the world will be losing money.

[Turkeyslapper]

I guess it is already having a real impact

British Airways will ground part of its fleet over rising fuel cost
http://business.timesonline.co.uk/to...cle3953811.ece (http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article3953811.ece)

British Airways plans to ground part of its fleet from October to cut costs and stem potential losses caused by the crippling price of fuel.
Confirmation of the move, from chief executive Willie Walsh, comes as analysts warn BA may only break even or worse for the next two years, despite having reported one of its best year’s trading last week.
The sudden reversal has been caused by rapidly rising fuel prices – jet fuel went through the $1,300-a-tonne mark last week – and sluggish demand.
BA has already selectively slashed fares across the Atlantic, offering returns to New York for £249, a base fare of £30 once taxes and fuel surcharges are stripped out. “It is a bloodbath,” said one industry executive.
Scheduled airlines rarely ground aircraft, preferring to keep their expensive fleets in the air, although Ryanair has kept planes on the ground during slack periods. Walsh said: “You should certainly expect us to do that this winter.”

The airline would park its oldest, least fuel-efficient aircraft. Walsh said this would be likely to include its older Boeing 747s, 767s and 737s.
BA last week reported strong annual results for 2007-8, hitting its long-held goal of a 10% profit margin, paying staff £35m in bonuses and the first dividend in seven years.
Walsh did not take his £700,000 bonus, saying it was not appropriate in the wake of the chaotic opening of Heathrow’s terminal 5.
The fall-out from the T5 debacle will dent BA’s figures this year. The company has guided analysts to expect a hit of a further £40m-£50m on top of the £18m in the last financial year.
Half of the hit would be in extra costs, half in lost revenue. Walsh told analysts that T5 was working smoothly, although the moves of additional flights to the terminal would still be later than first planned.
Fuel will be the biggest headache for BA. If oil continues at $120 a barrel, BA’s profits could be wiped out this year. Chris Avery, analyst at JP Morgan, said that if oil remained above $110 a barrel, “investors need to be very conscious that BA could make a loss for one or both of the next two years”.
BA is hoping tough times will help it take the lead in industry consolidation. Walsh said that he had resumed negotiations with American Airlines and Continental Airlines of the US with the aim of creating a transatlantic alliance.
Previous attempts have been rebuffed by American regulators, but Walsh said he was hopeful the difficult trading environment would clear the way for a deal. Pilots begin a legal challenge to BA’s plans to start an “airline within an airline” tomorrow. The company wants to start flights between Paris and New York next month with a new subsidiary called Open Skies.
The British Airline Pilots Association does not oppose the services, but is against the planned use of flight crews from outside the main BA pilot group.
Pilots voted in favour of striking over the issue earlier this year, but they have put the action on hold pending this week’s High Court challenge.

[Facelookbovvered]

The avaiation landscape will look very different this time next year. Many airlines will cut routes that are marginal this is already happening in the low cost sector Gdansk has already lost easyjet and baby, many many more routes will follow this winter.

Think about this: with oil at $1300 a tonne a 5 tonne burn down to the med on a 737 works out at $6500 one way if you only manage to sell a 100 seats (not a bad winter load before the current squeeze) that equates to $65 a seat one way about £35 just in fuel!! another £10-£20 in tax and charges and your up to £50 before Nav, landing fee's, then there is the small matter of crew costs, aircraft cost never mind a margin!! so expect charges well over a hundred quid to break even, sure if you can fill it the number look better, but that didn't happen in the good times (in winter) so i don't see that happening going forward.

Who will come out the other side? well BA, Easy,Ryanair, Flybe after that its anyone guess, it might be the roll in the dice that makes SMB think i don't need this hassel, Luffty could well own 49% of Virgin by then, they made not a lot last year.

Sooner or later the hedge positions on fuel will expire and the cold wind of $1300 will bite.

World demand will slow, as for China, well most of its demand is driven flogging stuff to the west and if you can't afford to fuel your car in this country you wont be spending loads on imported toys, so in time the price will fall, the Dollar will recover (hopefully)