JP54 Jet & Aviation Fuel Price(s) Provided by JG Wealth May 2012
JP54, Jet Fuel Prices, Airlines and Controlling Rising Costs
Since the 1950s, air travel has been dominated by turbine-powered aircraft, making use of kerosene based jet fuels. However, that very dominance means that jet fuel prices have become a primary component in the cost of running an airline. This is further exacerbated by the fact that aviation fuel prices, like all vehicle based fuels, are vulnerable to price changes caused by external events. Conflict in the Middle East, a hurricane striking the Gulf Coast, or an oil spill can all lead to sudden and unpredictable price spikes.
This factor is worse for smaller airlines. Because it is more efficient, in the sense that a given amount of jet fuel is moving more people, to use larger aircraft, airplane fuel prices are lower on a per capita basis for the larger airlines. Smaller and local airlines, which often use smaller aircraft with lower passenger capacities, must pay more in terms of fuel used per person. Because of this, it can be extremely difficult for smaller airlines to compete with the larger airlines due to their higher aviation fuel prices.
It is therefore vital that airlines focus on finding the most dependable fuel supplier possible, to ensure that they are insulated from dramatic changes in airplane gas prices. Such an individual, often known as a fuel trader or broker, acts as an intermediary between the airline and the fuel supplier, seeking out the best fuel prices possible. These fuel traders or fuel brokers can result in vast savings for the airline, even as they themselves profit from their work brokering fuel supplies. This can be especially important during times when changing prices coincide with a busy flight schedule, such as during a major holiday. An airline that fails to control their jet fuel prices may find themselves actually losing money no matter how many customers they have during these busy periods.
Among the tools a fuel trader may use to control the price of aviation gas is an action called [i]fuel hedging[/i], which involves the company making a purchase of fuel vial a commodity swap or fuel option. Both of these tactics can ensure that the company pays the agreed upon price even if airplane gas prices increase. Should aviation fuel prices decrease, the commodity swap will lock the company into paying the agreed upon and now higher price, while a fuel option will permit the company to take advantage of the now lower price of fuel.
Given both economic and political trends, airlines, both large and small, and general jet fuel buyers have to be prepared for an ever more volatile market in aviation gas. Regardless of the exact methods used, controlling rising airplane fuel prices is vital for an airline's long-term financial health. Making use of fuel brokers and traders via JG Wealth's energy division ensures that an airline can depend on reliable, ethical, and effective assistance in controlling both long term and short-term fuel costs.
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