Premium #166 – Fuel Efficiencies and Aircraft Pricing

When most analysts think about the airline business, they almost immediately move to the price of fuel, its highest cost element. Fuel prices have plummeted over the past year. There is no oil shortage and the airlines have exploited the decline in costs without giving up anything in fares in the US market. This is much to the annoyance of consumers and a source of happiness to Wall Street — but with an oligopoly determined to not compete on fares, that is to be expected. So much for capitalism and enforcement of anti-trust laws.

When oil prices were surging, airlines were clamoring for improved fuel efficiency, and adding fuel surcharges at every opportunity. At the same time, new technology aircraft enabled the airlines to reduce their fuel burn.  The following chart illustrates the amount of fuel burned among US airlines per available seat mile.