Rajan Wilcox
Fuel is one of the highest costs for airlines, accounting for 20-40% of expenditure. The price of aviation fuel is volatile and varies depending on several factors, including the type of aircraft, sector length, cargo weight, and direction of travel. For example, a Jumbo Jet (Boeing 747-400) flying from London to New York burns approximately 70,000 kilograms of fuel, costing around £53,500. As of January 2022, the price of Jet A1 fuel was approximately $816 per metric tonne, or $0.82 per KG. However, fuel prices fluctuate, and different types of planes burn varying amounts of fuel, making it challenging to calculate the exact cost per aircraft on average per flight.
| Characteristics | Values |
|---|---|
| Jet fuel price volatility | Fuel prices fluctuate constantly due to global politics and market volatility. |
| Fuel type | Jet A, Jet A-1, and Aviation Gasoline (AVGAS) are common types of jet fuel. |
| Fuel consumption | A Boeing 747 burns approximately 36,000 gallons of fuel over a 10-hour flight or 5 gallons per mile. |
| Fuel cost examples | New York JFK to London Heathrow: $27,270. JFK to Los Angeles International: $10,757. Chicago O'Hare to Miami International: $4,747. |
| Global average jet fuel price | $90.21/bbl (as of the latest available data). |
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What You'll Learn
Fuel prices fluctuate
Secondly, refining costs impact fuel prices. Refineries charge more for higher-octane fuel, and premium-grade gasoline is typically the most expensive. Refining costs can also vary seasonally due to changes in gasoline specifications and formulations. For example, in the summer, environmental regulations require that gasoline be less prone to evaporation, leading to the use of more expensive components.
Thirdly, distribution and marketing costs affect fuel prices. These costs include the delivery of the fuel, the fee to refuel the aircraft, and marketing strategies. The number and location of competitors can also impact prices, as can the store type, fuel delivery method, and contract lengths.
Finally, taxes and fees can contribute significantly to fuel prices. On average, taxes and fees make up about 14% of what consumers pay at the pump, but these can vary by state or region, leading to price differences across different areas.
These factors, among others, contribute to the constant fluctuation of fuel prices, which can have a significant impact on the aviation industry and airlines' expenditures.
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Plane size and efficiency matter
Fuel is one of the highest costs for airlines, accounting for 20-40% of expenditure. The price of jet fuel is constantly fluctuating, and different types of planes burn varying amounts of fuel. For example, a Jumbo Jet (Boeing 747-400) flying from London to New York burns approximately 70,000 kilograms of fuel, costing around £53,500.
Secondly, the efficiency of an aircraft can be improved by reducing its weight and improving its aerodynamics. The use of lightweight materials such as carbon fibre can significantly reduce weight compared to aluminium designs, improving the plane's lift-to-drag ratio and reducing fuel consumption. Redesigning wings for increased aerodynamics and employing wingtip devices can also improve efficiency by reducing drag and increasing lift.
Thirdly, the efficiency of an aircraft's engines is crucial. Jet engines have an efficiency given by their airspeed divided by their thrust-specific fuel consumption and the specific energy of the fuel. The Rolls-Royce Trent XWB engine, for example, is currently the world's most efficient large aero-engine, offering improved efficiency and reduced noise levels compared to older engines.
Finally, the optimum speed and altitude of an aircraft can impact its fuel efficiency. Flying at subsonic rather than transonic speed can save a significant amount of fuel, and propeller planes tend to be more efficient than jets, with an optimum speed below 460 miles per hour. Additionally, economy is typically better at higher altitudes, and maintaining an optimum airspeed can maximise endurance and range.
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Direction of travel impacts costs
Fuel is one of the highest costs for airlines, accounting for 20-40% of expenditure. Fuel prices are subject to fluctuations, and different types of planes burn varying amounts of fuel. For instance, a Jumbo Jet (Boeing 747-400) flying from London to New York burns approximately 70,000 kilograms of fuel, costing around £53,500 or $158 per person.
The direction of travel also impacts fuel costs. Aircraft flying eastward can take advantage of the jet stream, resulting in significantly lower fuel costs compared to westward flights. Additionally, the efficiency of an aircraft is influenced by factors such as sector length, taxi time, cargo weight, weather, and jet stream direction.
To optimize fuel efficiency, airlines consider various strategies. Modern jet aircraft, for example, have twice the fuel efficiency of the earliest jet airliners. Newer aircraft like the Boeing 787 Dreamliner, Airbus A350, and Bombardier CSeries are 20% more fuel-efficient per passenger kilometre. This improvement is due to more fuel-efficient engines, lighter composite materials, aerodynamic shapes, winglets, and advanced computer systems.
Another strategy to enhance fuel efficiency is to design aircraft for subsonic rather than transonic speed. According to research, a subsonic turboprop aircraft with turboprop propulsion can save 21% of fuel compared to a conventional transonic aircraft. Additionally, flying at slower speeds recommended by the manufacturer can help reduce fuel burn, although it may lead to longer flight times and competitive disadvantages.
Furthermore, the propfan concept has gained interest due to its potential for improved engine and airframe efficiency. Airbus has patented aircraft designs with twin rear-mounted counter-rotating propfans, which offer higher efficiency than traditional turboprops.
Overall, the direction of travel, aircraft design, and operational strategies all play a role in optimizing fuel efficiency and managing costs for airlines.
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Hedging and contracts
Fuel is one of the highest costs for airlines, accounting for 20-40% of expenditure. As fuel prices are volatile, airlines often use hedging to stabilise costs and protect against price hikes. Hedging is a contractual tool that airlines use to reduce their exposure to volatile and potentially rising fuel costs. It allows airlines to establish a fixed or capped cost via a commodity swap or option.
Airlines commonly hedge their fuel costs by buying or selling the expected future price of oil through a range of derivatives. One simple strategy is to buy current oil contracts, locking in fuel purchases at today's prices. This is advantageous if prices are expected to rise in the future. Airlines can also employ a collar hedge, which uses a put option to protect an airline from a decline in the price of oil if the airline expects oil prices to increase. Another strategy is a swap strategy, which is similar to a call option but with more stringent guidelines. A swap locks in the purchase of oil at a future price and a specified date.
The approaches to fuel hedging vary across the industry. Some airlines frequently use hedges, while others rarely do. For example, Air France-KLM was well hedged in 2022, paying around $90 a barrel for its fuel, compared to the $170 a barrel it spiked to in March of that year. In contrast, none of the US 'big three' airlines (American, Delta, and United) were hedged for the latest price hike.
Hedging can be risky for airlines, as fuel prices can fall dramatically. If an airline has hedged its fuel and the market price is lower, the supplier 'wins' as it makes more money from the jet fuel. Additionally, if an airline has hedged its fuel and stops flying, such as due to the COVID-19 crisis, the airline still has to pay for the hedged fuel, resulting in financial losses.
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Jet fuel price index
Fuel is one of the highest costs for airlines, accounting for 20-40% of expenditure, and it is a cost that airlines have minimal control over. The price of jet fuel is constantly fluctuating, and several factors determine how much fuel is used by aircraft, including the size and efficiency of the aircraft, sector length, taxi time, cargo weight, weather, and jet stream direction.
The price of jet fuel is typically given in metrics such as price per metric tonne, price per barrel, price per gallon, and price per litre. As of January 2022, the price of Jet A1 was approximately $816 per metric tonne, or $0.82 per kilogram. In May 2020, Jet A1 was as low as $200 per metric tonne, or $0.20 per kilogram.
The Platts Jet Fuel Price Index is a widely used index that provides the latest price data for jet fuel. It is calculated by S&P Global Platts using their daily assessments of jet fuel spot prices in the relevant regional markets. When a market is not assessed on a particular day, the previous working day's spot assessment is used. Each of the individual Platts assessments is given a weighting in the regional baskets, primarily based on demand or uplift data and trading volume. The Platts Jet Fuel Price Index reflects the average prices paid at refineries for aviation jet fuel.
IATA (International Air Transport Association) also provides a weekly analysis of jet fuel prices, updating its jet fuel price index to provide the latest price data from Platts. For example, on December 2, 2022, jet fuel was priced at $122.70 per barrel, and on July 8, 2022, it was $146.17 per barrel.
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Frequently asked questions
The cost of fuelling a plane varies depending on the type of plane, the distance travelled, and the price of fuel at the time. As of January 2022, the price of Jet A1 fuel was approximately $816 per metric tonne.
A flight from London to New York on a B747 Jumbo Jet burns approximately 70,000 kilograms of fuel, costing around £53,500. This equates to around £118 per person on a flight with 450 passengers.
A short-haul flight, such as Chicago O'Hare International (ORD) to Miami International Airport (MIA), may cost around $4,747 to fuel.
Fuel costs can account for 20-40% of an airline's expenditure and is subject to fluctuations in the market. As of 2023, the share of fuel costs was estimated to reach 32%.
An A380 can hold approximately 315,000 litres of fuel, costing around £205,000 to fill up completely.
