A Commercial Aviation Consultancy

Ernest S. Arvai

Airline fuel surcharges have begun to largely disappear.  Carriers have eliminated them as oil prices remain low. But there are a few airlines that are hanging on to fuel surcharges, and some, like Qantas, that built surcharges into their base fares and haven’t significantly adjusted them downward. Why do some airlines maintain fuel surcharges and why haven’t they shared the benefit of lower prices with consumers?  There are several reasons:

First, some airlines are still paying higher fuel prices. Those that hedged future oil purchases at higher prices are stuck paying those high prices. Fortunately, most of those contracts expire by mid-2016. But some airlines are still paying much more than spot prices for oil. Hedging works well when prices are going up, but not so well on the way down.

Second, some airlines have concluded that maintaining higher fare levels on routes that aren’t competitive may… Continue reading

This order was telegraphed a week ago. Even as late as yesterday morning we were hearing from competitors that the race was still on. But United selected Boeing late Thursday when it reported its fourth quarter numbers.   The announcement was terse “Today, UAL announced it reached an agreement to acquire 40 new Boeing 737-700 aircraft which will enter the fleet beginning in mid-2017, replacing a portion of the capacity currently operated by regional partners.”

What does this mean for the small duopoly that fought long and hard for this deal? And are there other implications?

The Selection

  • Bombardier – the miss hurts this company more than any of the competitors for the order. Bombardier had had put in every effort to be a winner with its new C Series. The aircraft impressed some at the airline. But apparently not enough of the key decision-makers were won over. Bombardier… Continue reading

Reports that oil is falling through the $30 threshold and may even fall to $20 per barrel does not bode well for Middle Eastern economies. The situation in Saudi Arabia is so tenuous that the Kingdom is considering an IPO for Saudi Aramco, its national oil company. Governments in Qatar, the UAE and other oil producing states, set state budgets based on $60-$80 oil and now face massive deficits and an inability to maintain governmental services without incurring additional debt. Saudi Arabia has been reported to have burned through $100Bn of its reserves.

This brings up a great question.  If the allegations of government subsidies to the Gulf Three airlines made by US and European competitors are true, then given the current economic situation, those subsidies (if they exist) will dramatically drop. But if there are no subsidies (which the ME3 claim), apart from a decline in oil business… Continue reading

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