Rajan Wilcox
Jet fuel is cheaper than car fuel, and there are several reasons for this. Firstly, jet fuel is cheaper to refine than high-octane gasoline. Jet fuel requires very few additives and is not much harder to refine than hardware-store kerosene. Secondly, unforeseen events can cause variations in the price of jet fuel, such as the COVID-19 pandemic, which brought the price of crude oil to its lowest, or the Russia-Ukraine conflict, which caused an exponential hike. Thirdly, jet fuel prices vary by season, with summer air travel generally driving prices higher. Finally, jet fuel is used in much higher volumes than car fuel, which means there is a higher production volume and therefore cost savings.
Is Jet Fuel Cheaper than Car Fuel?
| Characteristics | Values |
|---|---|
| Cheaper in India | Yes |
| Cheaper in the US | No |
| Reason for being cheaper | Production volume, tax structure |
| Types of Jet Fuel | AVGAS UL91, AVGAS 100LL, JET A-1, JET F-34 |
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What You'll Learn
Jet fuel is cheaper to refine than high-octane gasoline
Jet fuel is derived from large strings of hydrocarbon compounds, which allow it to maintain a freezing point of around -58 degrees Fahrenheit (-50 degrees Celsius). Its octane rating is also significantly lower than automobile gasoline to prevent unwanted detonation due to heat or sparks. The refining process for jet fuel involves pipe stills and cat-crackers, which operate at a relatively low pressure of several psi. While sulfur removal adds to the cost, jet fuel requires very few additives, and its large-volume production further reduces costs.
In contrast, high-octane gasoline requires reformers that utilize high-pressure hydrogen (500 psi) at high temperatures (800 degrees Fahrenheit). The higher costs associated with the refining process for high-octane gasoline are reflected in the retail prices.
The demand for jet fuel also plays a role in the cost of refining. Summer air travel, for example, generally leads to higher jet fuel prices, and airlines may hedge against fluctuating crude oil prices by purchasing fuel in advance or through call options. Unforeseen events, such as the COVID-19 pandemic or geopolitical conflicts, can also impact jet fuel prices.
It is worth noting that the price of jet fuel and automobile fuel can vary due to demand and regional tax regimes. In some places, like India, jet fuel prices are lower than automobile fuel prices due to the way taxes are calculated and the higher taxes imposed on automobile fuel.
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Demand for jet fuel is seasonal, unlike gasoline
The demand for jet fuel is seasonal, unlike gasoline, which sees an increase in demand during holiday periods such as Thanksgiving in the United States. This is because more people travel by road during these times, whereas air travel demand is typically higher in the summer. As a result, jet fuel prices tend to be higher in the summer months.
Jet fuel prices are driven by crude oil markets, refining margins, geopolitical events, seasonal demand shifts, and supply chain dynamics. For example, the Russia-Ukraine conflict caused an exponential hike in jet fuel prices, which reached $135 per barrel in the United States in 2022.
The impact of geopolitical events on jet fuel demand and prices can be complex. For instance, during the US-Iran tensions in 2020, airlines rerouted flights to avoid Iranian and Iraqi airspace, resulting in increased fuel consumption rates. However, according to Michael Lapson, a Senior Valuation Analyst, the overall impact on jet fuel demand and prices was minimal as most flights do not fly over Iraq or Iran.
Jet fuel is a significant expense for airlines, accounting for about 30% of their total operating costs. Fluctuations in jet fuel prices can greatly impact the profitability of flight operations. Airlines employ various strategies, such as hedging contracts and consolidating flights, to manage fuel costs and budgeting.
Unlike gasoline, jet fuel prices do not always directly impact the cost of air travel. Airfares are determined by various factors, including market structure, competition, macroeconomic performance, and seasonal travel demand. Therefore, jet fuel prices are just one of the supply factors influencing airfares, and any changes in airfares due to fuel prices tend to occur with a lag.
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Unforeseen events can cause price hikes
Jet fuel prices are influenced by demand, and seasonal variations in air travel can lead to price fluctuations. Summer air travel, for instance, typically drives up jet fuel prices. In anticipation of rising fuel costs, airlines employ hedging strategies, such as purchasing fuel in advance or acquiring call options to secure specific prices.
The type of jet fuel also impacts its price. Different aviation fuels, such as AVGAS UL91, AVGAS 100LL, and JET A-1, vary in price due to additives and performance parameters. Military-grade jet fuel, for instance, is typically more expensive due to specialized requirements.
Regional variations in jet fuel prices also exist due to differences in supply and demand, as well as tax regimes. For example, in India, jet fuel prices for airlines are significantly lower than petrol and diesel prices due to the tax structure. Central and state government taxes contribute a substantial portion to the retail price of automobile fuels, while jet fuel prices are lower due to different VAT rates.
While jet fuel is generally cheaper than automobile fuel, unexpected global events, seasonal demand variations, fuel type differences, and regional tax structures can lead to price hikes and fluctuations in the cost of jet fuel. These factors contribute to the dynamic nature of jet fuel pricing and highlight the importance of staying abreast of market conditions and global events that can influence energy prices.
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Jet fuel is sold in larger volumes, reducing costs
Jet fuel is generally sold in larger volumes than car fuel, which contributes to its reduced cost. Jet-A, the most common type of jet fuel, is used in much higher volumes than piston aircraft fuel, such as 100LL. Commercial aircraft burn through significantly more Jet-A than piston aircraft burn through 100LL. For example, Southwest Airlines consumed 1.9 billion gallons of Jet-A in 2015, while the entire US GA piston fleet consumed only 175 million gallons of 100LL during the same period. This higher production volume leads to cost savings.
The higher volume consumption of Jet-A is due to several factors. Firstly, jet engines typically require a more substantial amount of fuel to operate than piston engines. Additionally, the number of jet engines in commercial aviation far exceeds the number of piston engines. This is because piston engines are primarily used in smaller, general aviation aircraft, while jet engines power larger commercial aircraft.
The greater demand for Jet-A fuel results in higher production volumes, which leads to economies of scale. Producing jet fuel in larger volumes reduces the average cost per unit. Refineries may even optimize their processes to prioritize jet fuel production over other products, further driving down costs.
It is worth noting that the price of jet fuel can be influenced by factors beyond volume, such as unforeseen events and seasonal variations in demand. For example, the COVID-19 pandemic caused a decrease in the price of crude oil, while the Russia-Ukraine conflict led to an exponential hike in prices. Similarly, jet fuel prices tend to be higher during the summer when air travel is more popular.
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Central and state taxes contribute to higher car fuel prices
While the price of jet fuel and car fuel both fluctuate with demand, there are several reasons why car fuel prices are higher, including central and state taxes. In the United States, the federal excise tax on gasoline is 18.4 cents per gallon and 24.4 cents per gallon for diesel fuel. On average, as of April 2019, state and local taxes and fees add 34.24 cents to gasoline and 35.89 cents to diesel. This brings the total US volume-weighted average fuel tax to 52.64 cents per gallon for gas and 60.29 cents per gallon for diesel.
In India, the central government levies an excise duty of Rs.19.90/litre on petrol. On top of this, state governments levy varying rates of sales tax and Value Added Tax (VAT). For example, Andhra Pradesh charges the highest tax on petrol in India, with 31% VAT + Rs.4/litre VAT + Rs.1/litre Road Development Cess and VAT thereafter. Petrol tax in India makes up 55% of the retailing price of petrol, while diesel tax is 50% of the fuel's retail value.
In addition to seasonal demand, the price of car fuel is also influenced by unforeseen events. For example, the Russia-Ukraine conflict caused an exponential hike in the price of crude oil, which affects the price of car fuel.
The price of jet fuel is also influenced by demand, with summer air travel generally driving up prices. Jet fuel is also cheaper for refineries to produce than high-octane gasoline, as it requires lower temperatures and less pressure to refine.
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Frequently asked questions
Yes, jet fuel is generally cheaper than car fuel.
Jet fuel is cheaper because it is less expensive to refine than high-octane gasoline. Jet fuel is also used in much higher volumes, which means there is a higher production volume and therefore a cost saving.
The price of jet fuel and car fuel fluctuates over time. In 2021, petrol and diesel prices in India were hiked for four days in a row, with petrol costing ₹105.84 per litre and diesel ₹94.57 per litre. In comparison, a litre of ATF (jet fuel) cost just ₹79 per litre.
The price of jet fuel varies due to demand and unforeseen events. For example, the Russia-Ukraine conflict caused an exponential hike in the price of jet fuel. The price of jet fuel also varies by season, with summer air travel generally driving jet fuel prices higher.
