Merged: The Price of Oil
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The critical element in this is not just the price of oil - but the price of jet fuel.
Jet fuel is a distillate of oil that sits just between heating oil [kerosene] and diesel fuel. Traditionally, the market has been driven by seasonal trends in the US - in summer, if demand is high, there is pressure on refiners to spill the aviation distillate into deisel. In winter, if demand is high, there is pressure on refiners to spill the aviation distillate into heating oil.
Why? Because for refineries, it is not just a case of cracking aviation distillate from the oil and selling it - there's a lot of additional processes required to ensure it meets aviation fuel standards [don't want a fuel blockage at 30,000 feet!!]. In many cases, it is simpler for refiners to just mix the aviation distillate into the next grade [up or down] and cut out the hassle.
That's why there is a premium of aviation distillate. Oil is $125 a barrel - jet fuel is $155 a barrel - a $30 premium. That premium has been growing steadily [for the reasons I mentioned] over the last 2 years - so that if Oil hits $150 a barrel, jet fuel may well hit $200 a barrel.
There are two other factors [not variables - they are fixed]. The shaping of the market - traditionally brought about by US seasonal factors - is now coming from super demand from India and China. That has swamped the market.
The second - and most critical - is refining capability. The US hasn't built a new refinery in over 20 years - and the current refining cycle shows refineries in the 'States operating at around 94% - that is, they are refining 94% of each and every day [on average]. Normal scheduled maintenance cycling demands that refineries operate around $85% efficiency - so, refineries are operating beyond maintenance requirements - and you can guess what's going to happen.
There have been very few refineries built in other parts of the world, for a whole host of reasons [environment in Europe, security in Africa, cost in South America]. Even some of the biggest oil exporters [Iran is a good example] export lots of oil - but have to import petrol and deisel.
A third factor in all this is the weakness of the US dollar. Oil has [almost] always been sold in US dollars. With the weakening of the US dollar, the purchasing power of oil producers has been eroded by over 30% in the last 2 years. They need oil to be 'overpriced' by $30 just to match where they were 2 years ago. You should also look at the long term price of oil versus the global economy [and I'm talking 150 years] - in relative terms, oil is still cheaper than it was in 1900!
Taking all of this into account, it is my prediction that oil will reach $200 a barrel by early 2009, with jet fuel hitting $250 a barrel. And when petrol hits $5.00 a gallon at the petrol pump in the US - look out! Watch the US economy dive!
Jet fuel is a distillate of oil that sits just between heating oil [kerosene] and diesel fuel. Traditionally, the market has been driven by seasonal trends in the US - in summer, if demand is high, there is pressure on refiners to spill the aviation distillate into deisel. In winter, if demand is high, there is pressure on refiners to spill the aviation distillate into heating oil.
Why? Because for refineries, it is not just a case of cracking aviation distillate from the oil and selling it - there's a lot of additional processes required to ensure it meets aviation fuel standards [don't want a fuel blockage at 30,000 feet!!]. In many cases, it is simpler for refiners to just mix the aviation distillate into the next grade [up or down] and cut out the hassle.
That's why there is a premium of aviation distillate. Oil is $125 a barrel - jet fuel is $155 a barrel - a $30 premium. That premium has been growing steadily [for the reasons I mentioned] over the last 2 years - so that if Oil hits $150 a barrel, jet fuel may well hit $200 a barrel.
There are two other factors [not variables - they are fixed]. The shaping of the market - traditionally brought about by US seasonal factors - is now coming from super demand from India and China. That has swamped the market.
The second - and most critical - is refining capability. The US hasn't built a new refinery in over 20 years - and the current refining cycle shows refineries in the 'States operating at around 94% - that is, they are refining 94% of each and every day [on average]. Normal scheduled maintenance cycling demands that refineries operate around $85% efficiency - so, refineries are operating beyond maintenance requirements - and you can guess what's going to happen.
There have been very few refineries built in other parts of the world, for a whole host of reasons [environment in Europe, security in Africa, cost in South America]. Even some of the biggest oil exporters [Iran is a good example] export lots of oil - but have to import petrol and deisel.
A third factor in all this is the weakness of the US dollar. Oil has [almost] always been sold in US dollars. With the weakening of the US dollar, the purchasing power of oil producers has been eroded by over 30% in the last 2 years. They need oil to be 'overpriced' by $30 just to match where they were 2 years ago. You should also look at the long term price of oil versus the global economy [and I'm talking 150 years] - in relative terms, oil is still cheaper than it was in 1900!
Taking all of this into account, it is my prediction that oil will reach $200 a barrel by early 2009, with jet fuel hitting $250 a barrel. And when petrol hits $5.00 a gallon at the petrol pump in the US - look out! Watch the US economy dive!
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Overnight, oil hit USD$135 a barrel for deliveries in November 2008. Remember, this is the start of the cool season in the northern hemisphere.
A US forecaster has now predicted oil will reach USD$200 a barrel by mid-2009.
This will mean that jet juel will hit USD$250 a barrel - 60% more than current price - and 250% more than the price this time last year.
The airlines cannot - and will not - sustain this - and the travelling public, already hard hit by domestic prolems like petrol, grocery and mortgage costs, will abandon air travel - even ultra low cost air travel - in droves.
If you have airline stock, then I'd suggest you give SERIOUS consideration to how long you intend to keep it. Look for small start-up companies doing innovative research into new sources of oil (exploration companies) or alternative energy.
Oh - and I notice there is another thread starting on this subject that scoffs at the claims that we will reach so-called 'peak oil' in 2015. The truth is, we have already passed 'peak oil' - that is why oil is no longer (and will never return to) USD$20 a barrel.
Predictions for the end of 2008: Australians will be paying $2.00 a litre for petrol. At least one new start low cost carrier will abandon Australia. Qantas cost-cutting will become even more vicious. Aviation training will dry up. GA flying hours will plummet.
If you were smart, you'd pool with your friends, put in $10,000 each, and buy a 50,000 gallon tank of petrol now [yes, it is possible to do - and your local service station can make arrangements]. It's the equivalent of fuel hedging, and you'll save a small fortune - and you'll be driving when others can't.
A US forecaster has now predicted oil will reach USD$200 a barrel by mid-2009.
This will mean that jet juel will hit USD$250 a barrel - 60% more than current price - and 250% more than the price this time last year.
The airlines cannot - and will not - sustain this - and the travelling public, already hard hit by domestic prolems like petrol, grocery and mortgage costs, will abandon air travel - even ultra low cost air travel - in droves.
If you have airline stock, then I'd suggest you give SERIOUS consideration to how long you intend to keep it. Look for small start-up companies doing innovative research into new sources of oil (exploration companies) or alternative energy.
Oh - and I notice there is another thread starting on this subject that scoffs at the claims that we will reach so-called 'peak oil' in 2015. The truth is, we have already passed 'peak oil' - that is why oil is no longer (and will never return to) USD$20 a barrel.
Predictions for the end of 2008: Australians will be paying $2.00 a litre for petrol. At least one new start low cost carrier will abandon Australia. Qantas cost-cutting will become even more vicious. Aviation training will dry up. GA flying hours will plummet.
If you were smart, you'd pool with your friends, put in $10,000 each, and buy a 50,000 gallon tank of petrol now [yes, it is possible to do - and your local service station can make arrangements]. It's the equivalent of fuel hedging, and you'll save a small fortune - and you'll be driving when others can't.
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I'm currently selling my Oil stocks...................
The price is gonna crash pretty soon...(if it doesn't, forget an airline industry..I'm gonna take up sleeping)
The price is gonna crash pretty soon...(if it doesn't, forget an airline industry..I'm gonna take up sleeping)
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Qantas Fuel hedge
I'm glad this is a rumour network because I heard from a fueller at my local aerodrome that QF only pay $90US a barrel for Big shiny plane fuel. This is apparently because they hedged thier fuel price for 5 years!
If this is true it would be interesting to see if they increase the "surcharge" because of rising costs.
Just remember this quote has no hard core facts attached to it. The guy could be winding me up.
Anyone set me straight?
If this is true it would be interesting to see if they increase the "surcharge" because of rising costs.
Just remember this quote has no hard core facts attached to it. The guy could be winding me up.
Anyone set me straight?
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A very interesting Article
I've researched the verifiable demand statistics mentioned in the article...and as far as is public..they appear to be accurate.
I've researched the verifiable demand statistics mentioned in the article...and as far as is public..they appear to be accurate.
Thread Starter
AMR SLASHES CAPACITY AS FUEL COSTS SOAR
Announces new round of flight schedule reductions and additional customer service fees at American Airlines in face of crippling jet fuel prices and weak economy. CEO warns of further cuts if conditions worsen. Shares tumble 25%.
Announces new round of flight schedule reductions and additional customer service fees at American Airlines in face of crippling jet fuel prices and weak economy. CEO warns of further cuts if conditions worsen. Shares tumble 25%.
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Haughtney 1,
Try looking at the following site. It gives a good historical perspective on the price of oil, and the factors that influence it:
http://www.wtrg.com/prices.htm
Crank 1000,
You are correct - Qantas [like a number of other airlines] has hedged, and continues to hedge, fuel. In Qantas' case, they have various amounts of fuel hedged at a range of prices - some is hedged at $90 a barrel.
The problem with hedging is that you actually have to pay for the oil now even if you won't use it for 3 or 4 years. This means a significant cash outlay - which a lot of airlines can't afford. It would be almost impossible for Qantas to hedge 100% of its fuel - at over USD$4BN a year [QF estimate of its fuel bill] they would be broke in no time [or maybe they could get staff to work gratis?]. I suspect QF has hedged around 20% of its fuel at $90 a barrel.
Spare a thought for US carriers in or about to come out of chapter 11 protection. They aren't allowed to hedge fuel, because they have no cash [or aren't supposed to have any, anyway] - and they can't borrow [they're technically bankrupt].
Spare a thought also for the LCCs. Most of their assets are leased [aircraft, facilities, etc] and they have nothing to put up as collateral against borrowing to hedge. So, they're truly at the mercy of the market.
I'm sure you've seen those TV programs where the crew has to take a whip-around from the passengers to buy fuel to get them out of some foreign location - well it may start happening on a more regular basis when the LCCs start facing up to the reality of fuel prices.
Tootle Pip!
Try looking at the following site. It gives a good historical perspective on the price of oil, and the factors that influence it:
http://www.wtrg.com/prices.htm
Crank 1000,
You are correct - Qantas [like a number of other airlines] has hedged, and continues to hedge, fuel. In Qantas' case, they have various amounts of fuel hedged at a range of prices - some is hedged at $90 a barrel.
The problem with hedging is that you actually have to pay for the oil now even if you won't use it for 3 or 4 years. This means a significant cash outlay - which a lot of airlines can't afford. It would be almost impossible for Qantas to hedge 100% of its fuel - at over USD$4BN a year [QF estimate of its fuel bill] they would be broke in no time [or maybe they could get staff to work gratis?]. I suspect QF has hedged around 20% of its fuel at $90 a barrel.
Spare a thought for US carriers in or about to come out of chapter 11 protection. They aren't allowed to hedge fuel, because they have no cash [or aren't supposed to have any, anyway] - and they can't borrow [they're technically bankrupt].
Spare a thought also for the LCCs. Most of their assets are leased [aircraft, facilities, etc] and they have nothing to put up as collateral against borrowing to hedge. So, they're truly at the mercy of the market.
I'm sure you've seen those TV programs where the crew has to take a whip-around from the passengers to buy fuel to get them out of some foreign location - well it may start happening on a more regular basis when the LCCs start facing up to the reality of fuel prices.
Tootle Pip!
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haughtney1, another good website is George Clemen - Oil-gasoline.com .
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The amazing thing is when I fly around at my local airfield, I see MORE and more planes fly every saturday. It just gets busier. I would really have thought that the people would fly less ... but NO.
My biggest fear is the impact of these oil prices on the GA community. As the price just goes up people who used to fly once a week will start flying once every 3 weeks ... because the rate at which the price goes up is exponential.
Maybe there is a light somewhere at the end of the tunnel ? or NOT ?
My biggest fear is the impact of these oil prices on the GA community. As the price just goes up people who used to fly once a week will start flying once every 3 weeks ... because the rate at which the price goes up is exponential.
Maybe there is a light somewhere at the end of the tunnel ? or NOT ?
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Crank 1000
Here's a quote from today's Australian [sorry to bring GD into the thread]:
“Oil and jet fuel prices continue to break records, with West Texas Intermediate spot crude oil passing $US134 a barrel overnight and Singapore Jet Fuel today trading at nearly $US166 a barrel,” he said.
Mr Dixon said Qantas had increased its fuel hedging and was now covered for 59 per cent of expected crude oil requirements in 2008/09 at $US111.81 a barrel, inclusive of option premium.
“Despite our hedging activities, fare increase, surcharges and strong focus on managing costs across our operations, we will not cover these higher fuel costs, which at current prices will add more than $2 billion to our fuel bill in 2008/09,” he said.
Here's a quote from today's Australian [sorry to bring GD into the thread]:
“Oil and jet fuel prices continue to break records, with West Texas Intermediate spot crude oil passing $US134 a barrel overnight and Singapore Jet Fuel today trading at nearly $US166 a barrel,” he said.
Mr Dixon said Qantas had increased its fuel hedging and was now covered for 59 per cent of expected crude oil requirements in 2008/09 at $US111.81 a barrel, inclusive of option premium.
“Despite our hedging activities, fare increase, surcharges and strong focus on managing costs across our operations, we will not cover these higher fuel costs, which at current prices will add more than $2 billion to our fuel bill in 2008/09,” he said.
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From today's Melbourne Age:
Virgin Blue will go bankrupt unless it can dramatically raise airfares, if fuel prices remain at current levels into the longer term, JPMorgan has warned.
Days after the broker UBS warned the airline could need a cash injection from its shareholders in 2009-10, if jet fuel prices fail to retreat, JPMorgan said a capital raising would be "pointless'' and would fail to keep the airline solvent.
"A 5% [air fare] rise is not enough to cover fuel costs. A $500 million equity injection would buy some time in hope that fuel costs fall but if fuel did not fall Virgin Blue on our analysis would eventually become insolvent despite the equity injection,'' the broker said.
If fares do not rise, JPMorgan predicted the airline's negative cash flows would result in its net debt to spiral from $1 billion to $3.2 billion by 2015.
The only way to "save the company'' JPMorgan said would be for Virgin Blue to impose a 10% fare increase.
"While we would expect Virgin Blue to survive under this scenario, its earnings profile hardly looks attractive,'' the broker said, noting the airline's profit would never reach its 2006-07 record net profit of $232 million.
Even in this situation, JPMorgan said Virgin Blue would post a meagre $30 million profit next financial year.
The main obstacle Virgin Blue has in raising fares is the likely impact of demand and its ability to fill its growing fleet.
If Virgin Blue raises fares, it could be forced to cut some aircraft out of its fleet to deal with the likely fall in demand. The airline has 33 jets on order.
Virgin Blue will go bankrupt unless it can dramatically raise airfares, if fuel prices remain at current levels into the longer term, JPMorgan has warned.
Days after the broker UBS warned the airline could need a cash injection from its shareholders in 2009-10, if jet fuel prices fail to retreat, JPMorgan said a capital raising would be "pointless'' and would fail to keep the airline solvent.
"A 5% [air fare] rise is not enough to cover fuel costs. A $500 million equity injection would buy some time in hope that fuel costs fall but if fuel did not fall Virgin Blue on our analysis would eventually become insolvent despite the equity injection,'' the broker said.
If fares do not rise, JPMorgan predicted the airline's negative cash flows would result in its net debt to spiral from $1 billion to $3.2 billion by 2015.
The only way to "save the company'' JPMorgan said would be for Virgin Blue to impose a 10% fare increase.
"While we would expect Virgin Blue to survive under this scenario, its earnings profile hardly looks attractive,'' the broker said, noting the airline's profit would never reach its 2006-07 record net profit of $232 million.
Even in this situation, JPMorgan said Virgin Blue would post a meagre $30 million profit next financial year.
The main obstacle Virgin Blue has in raising fares is the likely impact of demand and its ability to fill its growing fleet.
If Virgin Blue raises fares, it could be forced to cut some aircraft out of its fleet to deal with the likely fall in demand. The airline has 33 jets on order.
Thread Starter
Boeing sales dip as airlines suffer
By Bill Rigby , Fri 06-Jun-2008 07:05
After three years of record plane sales, Boeing Co's orders are showing signs of slipping as the world's airlines scramble to survive soaring oil prices.
The top four US airlines are planning to slash flights, lay off workers and retire older planes this winter as they look to cut their fuel bills, moves likely to be followed by overseas carriers.
Boeing says demand for its new, more fuel-efficient planes will stay strong, but airlines are showing signs of alarm as jet fuel hovers above $US150 a barrel, adding billions of dollars to airlines' operating expenses.
Amid talk of mergers and bankruptcies, new plane orders have started to slow and analysts' outlook for the next three to four years has darkened.
"The airlines are having a hell of a rough time, which means they will continue being weak financially," said Paul Nisbet at aerospace specialists JSA Research. "The US airlines in particular are going to have to delay further buying airplanes."
It's too early to call it a disaster for Boeing, said Nisbet, given that a dip in orders was already expected after the boom, and that Boeing has a record $US271 billion ($A282.6 billion) worth of jetliner orders on its books.
But the situation could become serious if oil stayed high and economic weakness in the United States spread to the rest of the world, according to analysts.
"Although the Boeing backlog is currently huge, we expect declining orders and delivery deferrals to result in a flattening off in production from 2010," said Macquarie Capital's Rob Stallard in a research note on Thursday. That would signal "the end of this aerospace up-cycle," he added.
Boeing shares fell 82 US cents or 1.1 per cent to $US77.20 in late afternoon trading on the New York Stock Exchange on Thursday. The stock is down 28 per cent since its all-time high in July last year.
Airlines signed up to buy 67 new aircraft from Boeing in May, compared with 92 in the same month a year ago, according to the latest update of the plane maker's online order book.
It sold 61 of its single-aisle 737s, mostly to unidentified customers, plus six of its 777 minijumbos. It took no orders for its new 787 Dreamliner, which is now at least 15 months behind schedule and not set to fly until later this year.
Boeing had 414 commercial plane orders at the end of May, in line with the 417 it had at the same time last year, which turned out to be its best year ever, with 1,413 net orders.
But the pace of orders has slowed from a brisk start in the first three months of the year, and few are expecting that Britain's Farnborough International Airshow in July - where airlines like to unveil big orders - will be a blow-out this year.
Boeing's main rival Airbus, a unit of European aerospace group EADS, has not yet felt a decline. According to the latest available figures, it had 397 net new orders for the year at the end of April, higher than the same time last year.
Boeing's chief concern is that airlines in the United States and Europe are aggressively cutting flights and scaling back capacity, which are the main indicators of industry growth and, ultimately, demand for planes.
Carriers in Asia and the Middle East, Boeing's strongest-growing markets in the past few years, have not shown signs of weakness so far, but high oil prices could eventually hurt them too.
"Our leading concern is outside the United States, if there is a global recession," said Douglas Harned at Sanford C. Bernstein in a research report. "Non-US (plane) orders are more for growth than replacement, and economic weakness could lower expectations."
If the rest of the world did follow US airlines, the market for new planes could grow much more slowly than Boeing has been expecting.
On Thursday, Continental Airlines Inc announced a 16 per cent cut in domestic flights this winter, following similar moves by AMR Corp's American Airlines, UAL Corp's United Airlines and Delta Air Lines Inc in the last few weeks.
Discount carriers JetBlue Airways Corp and AirTran Holdings Inc have deferred new plane deliveries and trimmed their expansion plans.
European carriers have not reacted so drastically, but more cuts in services are expected.
German discount carrier Air Berlin, a big customer for Boeing's 787, said last week it would scrap unprofitable routes, while Ireland's Ryanair Holdings Plc - Europe's biggest low-cost airline - is planning to ground as much as 10 per cent of its fleet. British Airways Plc's chief executive said last month that capacity cuts this winter were "inevitable."
Airlines are hoping that cutting flights will help them survive a brief spike in oil prices, but Boeing would have a major problem if that failed, or economic weakness spread.
"If history is a guide, it is gross domestic product that matters, not rising fuel prices alone," said Bernstein's Harned. "Short-term capacity cuts should not hurt the cycle. The greatest risk is in 2011-2012."
After three years of record plane sales, Boeing Co's orders are showing signs of slipping as the world's airlines scramble to survive soaring oil prices.
The top four US airlines are planning to slash flights, lay off workers and retire older planes this winter as they look to cut their fuel bills, moves likely to be followed by overseas carriers.
Boeing says demand for its new, more fuel-efficient planes will stay strong, but airlines are showing signs of alarm as jet fuel hovers above $US150 a barrel, adding billions of dollars to airlines' operating expenses.
Amid talk of mergers and bankruptcies, new plane orders have started to slow and analysts' outlook for the next three to four years has darkened.
"The airlines are having a hell of a rough time, which means they will continue being weak financially," said Paul Nisbet at aerospace specialists JSA Research. "The US airlines in particular are going to have to delay further buying airplanes."
It's too early to call it a disaster for Boeing, said Nisbet, given that a dip in orders was already expected after the boom, and that Boeing has a record $US271 billion ($A282.6 billion) worth of jetliner orders on its books.
But the situation could become serious if oil stayed high and economic weakness in the United States spread to the rest of the world, according to analysts.
"Although the Boeing backlog is currently huge, we expect declining orders and delivery deferrals to result in a flattening off in production from 2010," said Macquarie Capital's Rob Stallard in a research note on Thursday. That would signal "the end of this aerospace up-cycle," he added.
Boeing shares fell 82 US cents or 1.1 per cent to $US77.20 in late afternoon trading on the New York Stock Exchange on Thursday. The stock is down 28 per cent since its all-time high in July last year.
Airlines signed up to buy 67 new aircraft from Boeing in May, compared with 92 in the same month a year ago, according to the latest update of the plane maker's online order book.
It sold 61 of its single-aisle 737s, mostly to unidentified customers, plus six of its 777 minijumbos. It took no orders for its new 787 Dreamliner, which is now at least 15 months behind schedule and not set to fly until later this year.
Boeing had 414 commercial plane orders at the end of May, in line with the 417 it had at the same time last year, which turned out to be its best year ever, with 1,413 net orders.
But the pace of orders has slowed from a brisk start in the first three months of the year, and few are expecting that Britain's Farnborough International Airshow in July - where airlines like to unveil big orders - will be a blow-out this year.
Boeing's main rival Airbus, a unit of European aerospace group EADS, has not yet felt a decline. According to the latest available figures, it had 397 net new orders for the year at the end of April, higher than the same time last year.
Boeing's chief concern is that airlines in the United States and Europe are aggressively cutting flights and scaling back capacity, which are the main indicators of industry growth and, ultimately, demand for planes.
Carriers in Asia and the Middle East, Boeing's strongest-growing markets in the past few years, have not shown signs of weakness so far, but high oil prices could eventually hurt them too.
"Our leading concern is outside the United States, if there is a global recession," said Douglas Harned at Sanford C. Bernstein in a research report. "Non-US (plane) orders are more for growth than replacement, and economic weakness could lower expectations."
If the rest of the world did follow US airlines, the market for new planes could grow much more slowly than Boeing has been expecting.
On Thursday, Continental Airlines Inc announced a 16 per cent cut in domestic flights this winter, following similar moves by AMR Corp's American Airlines, UAL Corp's United Airlines and Delta Air Lines Inc in the last few weeks.
Discount carriers JetBlue Airways Corp and AirTran Holdings Inc have deferred new plane deliveries and trimmed their expansion plans.
European carriers have not reacted so drastically, but more cuts in services are expected.
German discount carrier Air Berlin, a big customer for Boeing's 787, said last week it would scrap unprofitable routes, while Ireland's Ryanair Holdings Plc - Europe's biggest low-cost airline - is planning to ground as much as 10 per cent of its fleet. British Airways Plc's chief executive said last month that capacity cuts this winter were "inevitable."
Airlines are hoping that cutting flights will help them survive a brief spike in oil prices, but Boeing would have a major problem if that failed, or economic weakness spread.
"If history is a guide, it is gross domestic product that matters, not rising fuel prices alone," said Bernstein's Harned. "Short-term capacity cuts should not hurt the cycle. The greatest risk is in 2011-2012."
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According to Comsec, as at July 2007, 75% of the Australia’s top 200 companies had corporate accounts with Virgin Blue and while they only had 5% of government business at that time this sector is being vigorously targeted with the introduction of the Embraer into Canberra.
Contrary to some previous posts Virgin does has some fleet flexibility. In FY08 VBA’s fleet will be 46% leased and over the following 12 months it will have the option to exit some of these leases.
Virgin has 19 options on Embraers, of which 7 have been delivered but if need be some of those could be deferred or cancelled.
By utilising the Embraers, Virgin will be able to match capacity on routes where load factors drop or operate them on trunk routes during off peak times. Virgin has identified 18% of the Australian market that it does not currently serve and could operate more direct services bypassing hubs.
This strategy is not so readily available to Qantas, where up until now it has withdrawn from unprofitable or non-business routes in favour of Jetstar who still operate aircraft of a similar size.
Virgin has 49% of its fuel hedged in FY08 although I can find no information on their situation in FY 09.
Contrary to some previous posts Virgin does has some fleet flexibility. In FY08 VBA’s fleet will be 46% leased and over the following 12 months it will have the option to exit some of these leases.
Virgin has 19 options on Embraers, of which 7 have been delivered but if need be some of those could be deferred or cancelled.
By utilising the Embraers, Virgin will be able to match capacity on routes where load factors drop or operate them on trunk routes during off peak times. Virgin has identified 18% of the Australian market that it does not currently serve and could operate more direct services bypassing hubs.
This strategy is not so readily available to Qantas, where up until now it has withdrawn from unprofitable or non-business routes in favour of Jetstar who still operate aircraft of a similar size.
Virgin has 49% of its fuel hedged in FY08 although I can find no information on their situation in FY 09.
