Looming Jet Fuel Shortages?

[Quickstatus]

If there was rationing

The best way to ration anything would be to price it accordingly. In principle, raise the price reduce the demand.
While fuel efficiency is important for an airline, the most important metric is profitability.
The calculations are a dark art, but it is not necessarily true that a full all Y aircraft is more profitable than a mixed class aircraft in a high fuel price environment.
It is not also immediately appreciated is that every passenger has certain elasticity when it comes to price. Highly elastic passengers are very responsive to price changes, whereas highly inelastic passengers are unresponsive to price changes. Of course, it can't be assumed that LCC passengers are highly elastic, nor that passengers with high discretionary income are mainly inelastic to price changes. That elasticity might be also be influenced by other factors such as destination, route, timing, airline brand, frequent flyer status
The other issue is that aircraft cabin configuration is relatively fixed and not easily changed - say from mixed class to full Y.

Then add in competition from other carriers and its relative contribution to profitability.

So in a high fuel price, non guaranteed supply environment, airlines would firstly reduce the marginally profitable routes where they also consider that passengers are highly elastic, and where a cheaper aircraft type is unavailable (or where the cheaper aircraft type is more profitable elsewhere

It is complicated, but I don't think we can assume that JQ37 to Denpasar will stop flying before QF1 to LHR.

 

[MEL_Traveller]

The best way to ration anything would be to price it accordingly. In principle, raise the price reduce the demand.
While fuel efficiency is important for an airline, the most important metric is profitability.
The calculations are a dark art, but it is not necessarily true that a full all Y aircraft is more profitable than a mixed class aircraft in a high fuel price environment.
It is not also immediately appreciated is that every passenger has certain elasticity when it comes to price. Highly elastic passengers are very responsive to price changes, whereas highly inelastic passengers are unresponsive to price changes. Of course, it can't be assumed that LCC passengers are highly elastic, nor that passengers with high discretionary income are mainly inelastic to price changes. That elasticity might be also be influenced by other factors such as destination, route, timing, airline brand, frequent flyer status
The other issue is that aircraft cabin configuration is relatively fixed and not easily changed - say from mixed class to full Y.

Then add in competition from other carriers and its relative contribution to profitability.

So in a high fuel price, non guaranteed supply environment, airlines would firstly reduce the marginally profitable routes where they also consider that passengers are highly elastic, and where a cheaper aircraft type is unavailable (or where the cheaper aircraft type is more profitable elsewhere

It is complicated, but I don't think we can assume that JQ37 to Denpasar will stop flying before QF1 to LHR.

The point is not about profitability in times of fuel rationing, but carrying the maximum number of passengers, as efficiently as possible.

An all-economy 29 inch pitch aircraft is going to carry more pax than the equivalent with business class and economy extra.

Pricing can be dynamic. If someone on business ‘must’ fly, they’ll pay $2000 for an economy seat just as they will for a wider business seat.

Govt could discourage inefficient seating through a tax on anything above 29inch (save for exits), similar to what they do in the UK.

 

[Saab34]

Sounds too complicated. A straight cut of say 10/20/30% of capacity and the airline works out what is best for them.

Airlines have already pulled back what appears to be 10-20% for May.

Batik has cut 40% and is asking for staff to apply for LWOP. Likely highlights that carriers financial vulnerability.

 

[Pushka]

Most would have locked in flights for summer by now so increasing prices will have minimal effect during next critical months.

 

[Quickstatus]

The point is not about profitability in times of fuel rationing, but carrying the maximum number of passengers, as efficiently as possible

It is about profitability even in a rationing environment.
How is a mixed class airline suddenly going to replace at very short notice all their interior cabins with an all Y cabin?. That is simply not going to happen
Airlines have been adept at adjusting supply based on prevailing circumstances - they do it everyday. If profitability is marginal or negative for a particular route, they would just stop it. And if such a route is important to the Guvment, the airline can be subsidised to keep it running.

 

[dajop]

That elasticity might be also be influenced by other factors such as destination, route, timing, airline brand, frequent flyer status

Not to mention linked flow on effects. For example, the company I work for is facing significant production cuts and significant reductions in revenue due to a critical material in production process currently being sourced from ME. As a result, severe restrictions on business travel. Many companies face increasing cost of logistics. Other companies may be facing softening in demand. There are all sorts of flow on effects that may mean demand for premium cabins could become more elastic.

 

[AuSammy]

It is about profitability even in a rationing environment.

I'll remind you of 1989. When things get desperate to move people around, profitability is the last thing on the agenda

 

[AuSammy]

One small bright bit of news.

Sauda have announced the oil pipeline to the Red Sea is repaired and they are back up to full production

Saudi Arabia says key oil pipeline back to full capacity after attacks

The Ministry of Energy says the East-West pipeline is back to pumping about 7 million barrels per day.

www.aljazeera.com

 

[mbe1510]

I hope budget airlines in Europe will be first to cut.
They don't have an extesive network outside Europe, they don't have Business Class, they don't belong to three major alliances, and I don't think some of them can survive.
With Jetfuel prices above US$200 per barrel, I just don't see a lot of budget airline routes can survive with £16.99 tickets..

I would have thought budget airlines carry more European travellers on their holidays than foreigners due to moet not needing a large checked bag. Therefore I think those airlines play a bigger role in connecting cities across Europe

I know when I fly BA it seems as though Americans and international tourists would easily outnumber Brits on some flights, which i imagine cost plays a role

 

[equus]

I thought i read somewhere that even if you hedge, oil companies can declare force majeure and the hedging doesn’t have to be honoured?

That will largely depend on how the hedging is being done. If it is a forward purchase contract with the actual supplier, then force majeure is a real risk - in that the supplies may not exist to be delilevered (and anyting avaialble will be delivered to those who are paying the most, and too bad about the contract).

On the other hand, if the heddging is financial - using derivatives, swaps or the like, then the issue resolves into the abiltiy of the counter-party to sustain whatever losses result in having to cover their bad position. Airlines would be in a better position here, as provided the financial counter party can sustain the financial hit, they would be competing for the limited supply on an equal price basis with the market - so more likely to be able to get something.