Oil price on the decline

[oz_mark]

Oil fell below $US110 a barrel on Tuesday for the first time since April as traders bet the US oil industry would recover quickly from Hurricane Gustav.

Early indications that oil installations suffered only minor damage from the storm returned the market's focus to bearish factors including slowing global energy demand growth, rising inventories and a stronger US dollar

Oil sinks below $US110, hitting five-month low as Gustav leaves US oil industry mostly unaffected

 

[JohnK]

Yet no sign of airfares or fuel surcharges rolled back. The airlines are quick to react when oil prices increase yet do nothing when the oil price comes back down.

I wonder at what level of oil price will the airlines will cry poor again and increase airfares or fuel surcharges? Will they wait until it goes back over US$140/barrel or cry poor sooner?

 

[medhead]

I thought I read somewhere that QF had fuel hedged at $118 a barrel. No doubt they'll hit us for a hedging surcharge when the price of fuel drops below their hedged level.

 

[v8Statesman]

And today 91 Unleaded jumped 10cents in Perth

POS oil companies!

 

[SeaWolf]

Airlines not passing on fuel savings: Fuel Trac - ABC News (Australian Broadcasting Corporation)

A Brisbane-based fuel watchdog firm says Australia's airlines are not passing fuel savings along to passengers. Prices for aviation fuel fell on international markets on Tuesday night.
Jet fuel has dropped from $US181 a barrel in July to $US123 a barrel

 

[codash1099]

Airlines not passing on fuel savings: Fuel Trac - ABC News (Australian Broadcasting Corporation)

And is anybody surprised?

 

[dajop]

Some airlines have or will adjust their surcharges, but they are few and far between ... two that come to mind are Rex and the very transparent LAN fuel surcharge regime.

 

[SeaWolf]

Last time there was a change in the QF Fuel Surcharge the finance guy on ABC showed a very interesting graph. It charted the price of a barrel of jet fuel with marks on the line every time QF changed the fuel surcharge and labels on those marks showing what the surcharge was changed to. At the time jet fuel was on the way down and there was a line drawn across the graph at the current price. The fuel surcharge was half the rate when jet fuel had cost the same price on the way up. Now that fuel had fallen, the surcharge was double what it had been the last time fuel had cost that amount.

I like LAN's idea, it's all out in the open, everyone knows what they're getting and it will rise and fall exactly in line with the price of fuel. Nothing to hide, no suggestion that they're leaving it up even though the price has fallen.

 

[JohnK]

And is anybody surprised?

No but some us are hoping that someone in power will force fuel surcharges to be abolished and included in the cost of the base airfare.

 

[oz_mark]

The fact that the Australian Dollar is going down with the oil price is probably not helping things in Aussie Dollar terms.

 

[dajop]

The fact that the Australian Dollar is going down with the oil price is probably not helping things in Aussie Dollar terms.

Conversely, on the way up it also helped in Aussie Dollar terms. I haven't done the math as the AUD is commodity linked, the fluctuations in the AUD oil price are probably smaller in magnitude than the USD price.

But in an Australian airline context the decline in the AUD has probably increased capital costs, so will we see the fuel surcharge replaced with a "declining dollar surcharge"

 

[medhead]

Some more on oil prices in today's Oz Aviation section:

Fuel surcharges still apply despite oil price fall | The Australian

 

[JohnK]

The fact that the Australian Dollar is going down with the oil price is probably not helping things in Aussie Dollar terms.

That did not stop the Australian airlines from increasing fuel surcharges when the exchange rate went from ~50 cents to close to 98 cents. Any excuse will do to increase profits. Unfortunately for the airlines most people are aware what is happening and the silly practice of fuel surcharges has a limited shelf life....

 

[straitman]

But in an Australian airline context the decline in the AUD has probably increased capital costs, so will we see the fuel surcharge replaced with a "declining dollar surcharge"

Rather than replace the "fuel surcharge" they could just add a "declining dollar surcharge" :!:

 

[Flashback]

That did not stop the Australian airlines from increasing fuel surcharges when the exchange rate went from ~50 cents to close to 98 cents. Any excuse will do to increase profits. Unfortunately for the airlines most people are aware what is happening and the silly practice of fuel surcharges has a limited shelf life....

That's the exact same point I was going to raise, the poor performance (although I still wouldn't call current performance poor ) has never been an excuse before.

 

[codash1099]

QF buys a good proportion of its fuel overseas where the weakening doller (sob) isn't an offsetting factor.

The airlines took it upon themselves to highlight fuel costs as a separate pricing component. They should be forced to bear the consequences on the way down.

 

[oz_mark]

QF buys a good proportion of its fuel overseas where the weakening doller (sob) isn't an offsetting factor.

They still need to convert to the Aussie at some point in time.

 

[codash1099]

They still need to convert to the Aussie at some point in time.

Probably only the profit portion.

 

[medhead]

They still need to convert to the Aussie at some point in time.

That's going to be pretty minimal because they have both renevue and expenses in multiple currencies.

In any case, it is pretty widely reported that they have hedged at about US$118 per barrel of fuel (not oil) including the exchange rates. Apparently, they can get out of these hedging contracts without penalty so I see this a cap on the cost of fuel for QF.