Riding the roller coaster

NBAA Convention News » 2006
November 7, 2006, 8:21 AM

Skyrocketing jet fuel prices did almost nothing to slow down high-flying business jet travelers, who collectively took to the skies in record numbers this year, according to industry statistics. Now that crude oil prices are falling, analysts predict economic growth will further boost the use of business jets by corporations and the well-to-do. That’s great news for the companies that offer products and services to the industry, not to mention the pilots, mechanics, cabin crew and FBO line personnel who’ll be as busy as ever.

You don’t have to be a Wall Street trader to understand that the world oil market has far-reaching effects well beyond the price you pay at the pump, whether the fuel is for your car or your airplane. While the price of auto gas often rises due to cyclical increases in demand (such as during the summer months when Americans hit the interstates and head for the beach or mountains), the price for aviation fuel fluctuates for different reasons. And if you’re an airline executive or charter department manager desperate to stem the flow of red ink, fuel prices matter.

“The crisis at least for the commercial operators has something to do with supply but a lot with how the oil market has changed in the last five years,” said Cristina Haus, executive editor of Jet Fuel Intelligence, a weekly newsletter covering the aviation fuel business. “Now we’re having demand-driven price rises. Growth in the U.S. market is what’s underpinning these prices.”

In its Short-Term Energy Outlook released on September 12, the U.S. Energy Information Administration expected more than half of the 1.7 million additional barrels of oil per day in world demand next year to come from the U.S. and China. However, surplus crude oil production is expected to increase only slightly, with prices anticipated to average about $70 per barrel through the end of next year.

By late September, though, crude oil prices had dropped to a six-month low of $60 a barrel. A scan of major metropolitan FBO fuel prices on AirNav.com indicated jet-A was still well over $5 a gallon at many locations, especially in the Northeast. Escalating jet fuel prices over the last year have caused charter operators to raise their hourly rates, apply a fuel surcharge, or use other fees to make up the difference. Still, demand for charter is strong and getting stronger, according to industry watchers.

Haus said that over the last five years, through the war in Iraq, the SARS scare, and more recently the terrorism alerts in Great Britain, business aviation has benefited as airline travel has become increasingly riddled with hassle, inconvenience and worry for many travelers.

“That segment, as far as I can understand, is less vulnerable to the price of fuel,” she said. “As long as corporations are feeling wealthy, the sky’s the limit in terms of how much they’ll spend to send their executives where they need to go.”

With oil prices dropping, corporate profits are expected to rise and, if expectations play out the way they usually do when the numbers go in the right direction, business jet travel hours will be up as well. According to the monthly report on leading economic indicators prepared for the U.S. Joint Economic Committee by the Council of Economic Advisors, corporate profits before tax rose at an annual rate of $91.8 billion in the second quarter compared with $52.3 billion for the same period last year. So if businesses are feeling good, conventional wisdom says they will continue spending money on private air travel.

“I’ve never quite seen it this busy,” said Joe Moeggenberg, president of Cincinnati-based Aviation Research Group, of charter activity. “As far as we can tell, the industry is up about 20 to 25 percent over last year. Overall the charter industry has been doing very well. It’s been pretty amazing.”  

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