Over recent weeks, the IATA index has shown current jet fuel prices up as high as 50% from last year. Possible fare increases on major airlines have been the subject of many news stories, but what does this mean for general aviation?
When fuel prices spike there’s typically a minimum 6-month lag time before fare increases hit customers on scheduled carriers. With shorter booking lead times, and fuel procurement done on an as-needed basis, general aviation feels the effects much more immediately. What may surprise you is the degree to which fuel pricing effects the general aviation community over commercial fleets.
Part 91 and Part 135 operators typically spend up to twice as much per gallon as major commercial carriers. With operating costs already high, and margins razor thin, surging fuel prices frequently trigger a decline in activity, which hurts Part 135 operators and FBOs in particular. So why are major airlines better able to ride the wave of changing fuel prices?
- With recent mergers and consolidation, there are only 4 US airlines that control 70% of the domestic market. Higher volume and reduced competition works in their favor.
- Speaking of volume… this increased purchasing power allows them to lock in prices, so they’re less subject to short term fluctuations.
- They have more predictability. With scheduled routes, they can better forecast and buy fuel in advance.
While pricing spikes used to be a death knell for private aviation, increases in fuel efficiency, lighter aircraft, and current economic factors are helping steel the industry against price fluctuations. Most operators started the year off bullish, particularly due to the favorable changes in US tax regulation, so it will be interesting to see reaction throughout the industry. We can probably expect to see a slight dip in activity, particularly in charter bookings, but Part 91 operators, still buoyed by the current economic climate, will likely make minimal changes to jet use. Membership-based jet card operators may feel the heat the most, with many offering protections from surge pricing for their members, meaning price spikes directly hit their bottom line.
General aviation operators simply don’t have the scale and forecasting ability to come close to the level of stability of major carriers. This problem of fragmentation is exactly what AVIAÂ is working to change. By aggregating the volume of our members, we create economies of scale, multiplying the buying power of Part 91 and Part 135 operators, while delivering committed volume to suppliers. We use proprietary algorithms and human expertise to analyze spend data across our network, find efficiencies, forecast future savings, reduce friction, and deliver insights into the procurement process for both our members and preferred supplier partners.