You have reached your limit of free articles this month.

Enjoy unlimited access to myStatesman.com

Starting at just 99¢ for 8 weeks.

GREAT REASONS TO SUBSCRIBE TODAY!

  • IN-DEPTH REPORTING
  • INTERACTIVE STORYTELLING
  • NEW TOPICS & COVERAGE
  • ePAPER
X

You have read of premium articles.

Get unlimited access to all of our breaking news, in-depth coverage and bonus content- exclusively for subscribers. Starting at just 99¢ for 8 weeks

X

Welcome to myStatesman.com

This subscriber-only site gives you exclusive access to breaking news, in-depth coverage, exclusive interactives and bonus content.

You can read free articles of your choice a month that are only available on myStatesman.com.

Leave on a jet plane this summer while fuel costs stay cheap


It's the best summer for jet setting in more than a decade. 

As jet fuel costs have sustained near 12-year lows after a global crude market crash in late 2014, airlines are cutting ticket prices and travelers have noticed. Global passenger data show that air travel demand started the second quarter at growth rates unseen in six years, and U.S. carriers hauled more passengers than ever before last year.  

Worldwide, first quarter air travel costs dropped about 10 percent compared with the same period a year ago, according to the International Air Transport Association. About one-third of those costs can be linked to cheaper fuel, according to Savanthi Syth, senior vice president of airlines global research Raymond James & Associates, Inc.  

"Airline fares are set based on demand. But when fuel is low, and when a third of your cost drops by 50 percent, when it drops that much you do tend to grow," she said by phone from St. Petersburg, Fla. "You can offer lower fares and stimulate traffic."  

Wholesale jet fuel prices in the U.S. Gulf Coast stand at $1.27 a gallon compared with $2.80 in June 2014, according to spot market pricing gathered by Bloomberg Wednesday.  

The best way to generate more air traffic is to put more planes in the sky.  

"The big driver for jet demand is not so much the rise in passengers. But you need to get more planes flying," Robert Campbell, head of oil products research for Energy Aspects Ltd said by phone from New York.  

This doesn't necessarily mean making fresh fleet orders. Instead, airlines are increasing use of aircraft they already own by adding extra flights like discounted red-eyes, according to Syth.  

"At high fuel prices, that red-eye flight didn't make sense," she said.  

Rising demand spurred by lower prices has helped reduce nationwide supplies after they neared a seasonal 15-year high in the first quarter. Airlines hauled a record 822 million travelers last year, government data show, but jet fuel consumption didn't increase at the same pace. That's because fuel efficiency is improving, much like it has in newer cars. But cheaper jet fuel is giving carriers less concern for efficiency these days.  

"When jet fuel prices are relatively low, companies that are following the strategies of using older planes for longer can ignore the lower efficiency of the aircraft," according to Campbell.  

Lower fuel prices have become a built-in hedge for U.S. airlines, who've been able to run their fleets at lower costs and pass the savings down, said Brian Pearce, IATA's chief economist.  

"Air travel is cheaper, and couple that with the fact that you're seeing a rise in consumer confidence and economic upturn. We've seen really strong growth," he said by phone from Cancun, Mexico.  

Three of the six largest U.S. airlines have dropped their hedging positions, or guards against price spikes, since the beginning of 2014. American Airlines Group Inc. unraveled its hedges in 2014, while Delta Air Lines Inc. and United Continental Holdings Inc. closed hedges last year. Other airlines still have hedges in place, but haven't added new positions since mid-2015.  

"Jet fuel prices have been under a fair bit of pressure from oversupply," said Campbell. "There's not a lot of upside right now, given the crude price."  

The forward price curve is showing there's no real incentive to hedge in the future -- fuel will be lower for longer. The smaller costs coupled with industry consolidation have given U.S. carriers a stronger footing to handle any shocks collectively. And even the airlines that do still hedge, such as Southwest Airlines Co., have changed their strategy, according to Raymond James' Syth.  

"There's a lot more rationality," she said. "If fuel spikes, the industry will counteract it without having any players that are off in the wilderness."


Reader Comments ...


Next Up in Travel

Four resorts for a private island vacation
Four resorts for a private island vacation

Shared lodging and communal spaces may be trending, but for those seeking more privacy than a “Do Not Disturb” sign offers, a spate of new private island resorts play to castaway-in-comfort fantasies.  In the South Pacific, Kokomo Island Fiji opened this spring with 21 beachfront villas and five three-bedroom to six-bedroom residences...
How to travel safely (and keep calm)

With what seems a steady drumbeat of terrorist attacks targeting tourist attractions and events, travel today can be an anxiety-provoking proposition. In the last two months alone, for example, Britain, often thought of as a safe bet for travel, has been hit by a number of attacks, including one at a concert in Manchester that left 22 people dead,...
Travel tips: A luxe Greek vacation for less
Travel tips: A luxe Greek vacation for less

A high-end vacation in Greece is within reach even if you don’t have a big budget, says Christos Stergiou, the founder and owner of TrueGreece, an Athens-based travel company selling luxury trips to Greece.  “Compared to many other European countries popular with travelers, Greece is affordable, and it’s possible to have a very...
Wet winter ups the ante for hikers on popular US trail
Wet winter ups the ante for hikers on popular US trail

LOS ANGELES (AP) — Anya Sellsted had scaled scary snow-covered passes and forded frightening rivers during her solo hike from Mexico to Canada when the hazards of California's gargantuan winter finally caught up to her.  While crossing a partly submerged log in Yosemite National Park, Sellsted was sucked under the tree and down the rushing...
Family travel: Tips on how to navigate air travel for your children

School breaks mean more kids are on the move. Whether heading to camp, to visit family or connecting with friends, solo flights often become part of a family’s travel plan. Here are five tips to consider when putting your child on a plane:  1. Is your child ready to fly solo?   Consider your youngster’s maturity, travel experience...
More Stories