Mercedes Mullins
The cost of aviation fuel is a significant expense for airlines and is subject to market fluctuations. In the US, the price per gallon of jet fuel has varied from 3.17 U.S. dollars in 2012 to 1.45 dollars in 2016 and 1.98 dollars in 2021. The price is influenced by global politics and hedging, with airlines entering contracts to limit exposure to future price changes. Calculating the exact cost per aircraft per flight is challenging due to various factors, including the amount of fuel loaded and the number of suppliers. Fuel usage by US airlines has also fluctuated, with a recent increase from 1.58 billion gallons per month in December 2023 to 1.59 billion gallons per month in December 2024.
| Characteristics | Values |
|---|---|
| Fuel cost per gallon for U.S. airlines in September 2023 | $1.14 |
| Year-over-year changes in fuel consumption and cost for September 2023 | 6.0% increase in domestic fuel consumption |
| --- | 4.2% decrease in domestic fuel cost |
| --- | 9.6% decrease in cost per gallon |
| Total quantity of fuel consumed by U.S. airlines in December 2019 | 1.55 billion gallons per month |
| Fuel usage by U.S. airlines in December 2024 | 1.59 billion gallons per month |
| Fuel usage by U.S. airlines in December 2023 | 1.58 billion gallons per month |
| Fuel cost per gallon in 2012 | $3.17 |
| Fuel cost per gallon in 2016 | $1.45 |
| Fuel cost per gallon in 2021 | $1.98 |
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What You'll Learn
Fuel costs vary due to market fluctuations
Fuel is a significant expense for airlines, accounting for 15 to 20 percent of their total expenses. The cost of jet fuel has been volatile, with the average price per gallon for U.S. airlines reaching $3.17 in 2012, falling to $1.45 in 2016, and climbing back up to $2.79-$2.92 in Q1 2024 for Delta Air Lines and Southwest Airlines, respectively. Fuel costs vary due to market fluctuations influenced by global politics and supply and demand dynamics. For example, the average crude oil price in 2023 was $82.50 per barrel, with a forecast of $85 to $90 per barrel for 2024.
The volatility in fuel prices has a direct impact on airline ticket prices. When fuel costs are lower, airlines can pass on the savings to consumers in the form of reduced airfares. Conversely, when fuel prices rise, airlines may need to increase ticket prices to offset the higher fuel expenses. Fuel hedging is a strategy employed by airlines to protect themselves from extreme fluctuations in fuel costs, but it can also lock them into high-price cycles during certain market conditions.
The price of aviation fuel is influenced by factors such as the limited number of suppliers, the weight and efficiency of aircraft, and the increase in airline passenger travel. Airlines may opt to refuel planes at their destination rather than filling up entirely before departure to improve efficiency and manage costs. Additionally, the development of more sustainable aviation fuel (SAF) may impact how airlines and consumers share the burden of volatile fuel prices in the future.
Market fluctuations can cause significant variations in the cost of jet fuel, affecting both airlines and consumers. While airlines employ strategies like fuel hedging to manage these fluctuations, the impact of fuel prices on the aviation industry and ticket costs for passengers can be substantial.
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Fuel prices are impacted by global politics
The price of fuel for airlines is subject to market fluctuations. While the exact price per gallon can be challenging to pinpoint, it is impacted by global politics and events.
Global politics play a significant role in the fuel industry, with prices often reflecting the volatile nature of the market influenced by geopolitical events. For instance, the Russia-Ukraine conflict led to soaring oil and gas prices due to international government reactions. The subsequent decision by the US and several European nations to ban Russian oil imports resulted in a decrease in American crude oil imports, causing further price increases.
The cost of crude oil is the most significant factor in the retail price of gasoline, with federal, state, and local government taxes also contributing. In the US, the federal excise tax is 18.4 cents per gallon, while state taxes range from 15 cents in Alaska to 68 cents in California. These taxes, combined with wholesale costs, distribution and marketing expenses, and refining costs, influence the retail price of gasoline.
Airlines are limited to a select group of fuel suppliers, and their fuel costs can be impacted by hedging—contracts that protect against future price changes. Fuel prices also influence the operational strategies of airlines. For example, fully loading an aircraft is inefficient due to increased fuel consumption, so some airlines opt for partial refueling to reduce costs.
Fluctuations in fuel prices can have significant societal impacts, including social unrest, particularly in lower-income countries. Protests following fuel price hikes are often a response to adverse effects on the poorest households, unemployment, and inflation. Thus, global politics and events can indirectly influence societal stability through their impact on fuel prices.
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Fuel hedging protects airlines from market changes
Fuel is a major expense for airlines, accounting for 20% to 40% of their operating expenses. The cost of jet fuel is volatile and subject to market fluctuations, influenced by global politics and the geopolitical situation worldwide. For example, the price of jet fuel increased by more than 75% year-on-year in 2022. As a result, airlines have been feeling the impact, and it is challenging to pass on this dramatic rise in fuel prices to customers through increased ticket prices.
Fuel hedging is a strategy airlines use to protect themselves from market changes and stabilize costs. It involves purchasing forward contracts, where airlines buy or sell the expected future price of oil through a range of derivatives, thus protecting them from rising prices. A forward contract is customizable, with two parties agreeing to buy or sell a certain quantity of a commodity at a specified price on a future date. This locks in a price for the airline ahead of time, providing certainty and protecting them from future price rises. For example, Southwest Airlines and Air France-KLM did not hedge fuel in 2022 but still saved around $1 billion each through their hedging policies.
There are various hedging strategies that airlines can employ, such as collar hedges and swap strategies. A collar hedge protects the airline from losses if fuel prices increase, while a swap strategy locks in the purchase of oil at a future price on a specified date. Airlines can also buy current oil contracts, locking in fuel purchases at today's prices if they expect prices to rise in the future. Additionally, airlines are more likely to engage in hedging activities in times of high fuel demand to prevent their overall costs from soaring.
While fuel hedging can protect airlines from market changes, it also carries risks. Airlines could end up paying more than their competitors if fuel prices drop. There is always a "winner" and a "loser" once the forward contract reaches maturity. If the fuel market price at expiry is lower, the supplier "wins" as they make more money, whereas if the price is higher, the airline "wins". Additionally, hedging may have a minimal impact on an airline's overall value and long-term stock prices.
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Fuel consumption increases with more airline passengers
Fuel is a major expense for airlines, accounting for a large percentage of their expenditure. The cost of airline fuel has been volatile over the years, with prices influenced by global politics and market fluctuations. For example, the cost per gallon in the US reached a high of $3.17 in 2012, falling to $1.45 just four years later, and climbing back up to $1.98 in 2021.
While the fuel economy of commercial airlines has improved over time, leading to more fuel-efficient aircraft, there are still challenges posed by rising fuel costs and increasing passenger numbers. The number of airline passengers has been steadily increasing, and this has a direct impact on fuel consumption. As more people choose air travel, the demand for energy efficiency and fuel optimisation becomes even more critical.
One significant factor affecting fuel consumption is the weight of the aircraft, which includes the weight of passengers and cargo. The basic principle is that a heavier aircraft will burn more fuel, leading to decreased efficiency and higher costs. This is a notable challenge, as the average weight of the global population has been rising, leading to heavier passengers and increased payload weights. Airlines must balance customer expectations, safety requirements, and fuel efficiency, especially with the limited number of available seats due to the weight penalty of extra fuel on long-haul flights.
Additionally, the presence of long-range flights and multiple hub airports also contribute to increased fuel consumption. Airlines have responded by operating more direct air routes to reduce detours and optimise flight paths. Other strategies to minimise fuel consumption include cruising at higher altitudes, reducing airspeed, and using lightweight composite materials in aircraft design.
While it is challenging to calculate the exact cost per aircraft or per flight, it is clear that the interplay between rising fuel costs and increasing passenger numbers continues to shape the strategies employed by airlines to optimise fuel efficiency and manage their expenses.
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Fully loaded aircraft burn more fuel
The cost of aviation fuel is influenced by global politics, and prices can vary. For example, in the US, the cost of airline fuel was $3.17 per gallon in 2012, falling to $1.45 per gallon in 2016, and rising to $1.98 per gallon in 2021. In September 2023, the cost of fuel per gallon for US airlines increased by 11.4% from August 2023.
Fuel is a major expense for airlines, and the amount of cargo, passengers, and fuel onboard significantly affects fuel consumption. A heavier aircraft will burn more fuel, decreasing efficiency and raising costs. Therefore, fully loaded aircraft burn more fuel.
The stage of flight that burns the most fuel is the cruising stage, as this is when the aircraft is flying for the longest time and distance. During the take-off phase, the engines are working hardest, but this stage only comes second for the fraction of fuel burned off the total fuel used for the entire flight journey.
To minimize fuel consumption, an aircraft should cruise at the highest possible altitude while still being able to maintain its altitude. Higher altitudes provide better fuel efficiency due to thinner air. However, air pressure and temperature decrease with altitude, reducing the maximum power or thrust of aircraft engines.
Modern advancements in aviation have significantly improved fuel efficiency through technological innovations and optimized flight techniques. Aircraft manufacturers have introduced fuel-saving designs, and pilots employ strategies like Continuous Climb Operations (CCO) and Continuous Descent Operations (CDO) to minimize fuel-intensive level-offs.
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Frequently asked questions
The cost of aviation fuel is subject to market fluctuations and varies across different airlines. In December 2019, before the COVID-19 pandemic, US airlines consumed 1.55 billion gallons of fuel per month. In September 2023, the cost of fuel per gallon for US airlines increased by 11.4% from the previous month. The cost of airline fuel has been volatile, reaching a high of $3.17 per gallon in 2012 and decreasing to $1.45 per gallon in 2016.
The fuel industry is heavily influenced by global politics, leading to consistently volatile prices. Airlines use fuel hedging to protect themselves from market fluctuations, but this can also trap them in high-price cycles during certain events like the pandemic.
Fuel is a major expense for airlines, accounting for a large percentage of their expenditure. The varying costs of jet fuel can significantly impact airlines' operational and financial performance.
Airlines focus on fuel efficiency to manage fuel costs. Fully loading an aircraft is inefficient as a heavier aircraft burns more fuel. Some airlines may only fill up enough fuel for one and a half trips and refuel on the return journey.
