Comparison Of Frontier Airlines And Fuel Cost

Cost of fuel is also one of Air Canada’s largest operation costs items. Fuel prices have and may continue to fluctuate widely depending on many factors and, therefore Air Canada cannot accurately predict fuel prices. Due to the competitive nature of the airline industry, Air Canada may not be able to pass an increase in fuel prices to its customers by increasing its fares. In addition, Air Canada may be unable to appropriately or sufficiently hedge the risks associated with fluctuations in fuel prices. Furthermore, the impact of lower jet fuel prices could be offset by increased price competition, resulting in decreased revenues. Significant fluctuations in fuel prices could have a potential negative effect on Air Canada.

According to the Bureau of Transportation Statistics, the airline industry experienced losses from 2001 to 2004. In 2005, the industry was profitable for the first time in four years and stayed profitable through 2007. The economic and financial crisis in 2008 took a toll on the industry, causing a few airlines to file bankruptcy. The improvement of the economy in 2009 and 2010 helped the industry get back to profitability. Airlines were using tactics to increase revenues, including charging baggage fees, charging for food and drinks on board, and some airlines charged additional fees for seats with more leg-room. The large increases in revenues helped to offset the higher fuel costs, helping the companies achieve profitability.

Rampaging fuel prices now represent around 40 percent of an airline's costs, but, as usual, Southwest Airlines has been ahead of the curve. Since 1999, the airline's aggressive fuel-hedging program has saved it an estimated $3.5 billion.

Delta Air Lines began in the early 1920’s as a crop dusting operation, known as the Huff Daland crop dusting company, and was based out of Macon, Ga. This was the first agricultural flying company in existence at the time and grew into the world’s largest privately owned fleet of aircraft (18 planes) by the mid 1920’s. At the turn of the decade, co-founder C.E. Woolman lead a movement to purchase Huff Daland and re-branded the company as Delta Air Service, named after the Mississippi River Delta region the company would navigate.

Though they both are priced for the slimmest of budgets, the price of a round-trip ticket form Kansas City to Denver is about $22 cheaper with Frontier. This minuscule price difference does not seem like a huge difference, but some people would think that it really could help subsidize the difference of quality of service between the two, but Frontier has many other added on fees that Delta does not have, such as paying twenty extra dollars to carry-on luggage, $5 dollars for a can of soda, and another six for just an hour of in-flight entertainment. If someone bought all of these services, which are free with Delta, it would end up being more expensive than the better quality airline! Though if someone were to check their luggage on Delta they would be short an extra $35, while someone flying with Frontier would only have to shell out another fifteen.

The level of risks increased as Delta expanded into unchartered territory within the Caribbean, Europe and Asia. The possibility of loss of market share was also probable as Delta decided that it was unable to compete on a level playing field with United Arab Emirates government backed airline - Emirates. The pre-tax income for 2015 was $7.2 billion, representing a $6.1 billion increase compared to the prior year predominantly as a result of lower fuel prices and strong non-fuel cost controls. Delta’s operating revenue increased $342 million compared to the prior year primarily resulting from their “Branded Fares” initiative and agreement with American Express. [3] Total operating expense decreased $5.3 billion from 2014 driven by lower fuel prices, partially offset by fuel hedge losses, higher salaries and related costs and profit sharing. During 2015, Brent crude oil averaged $52 per barrel and closed the year below $40 per barrel, which is significantly lower than the average of $99 per barrel during 2014. Salaries and related costs were higher as a result of increases in pilot and flight attendant block hours due to higher capacity and pay rate increases implemented in

In addition, distribution expenses also increased from $187 million in 2010 to $245 million in 2012. The additional expense is a direct result of higher gas prices and the expansion of their E-commerce site. According to the U.S Energy Information administration, “the average price per gallon of gas in the United States in 2010 was $2.70”. “The average price per gallon of gas in the United States in 2012 was $3.54.” (U.S. Energy Informantion Administration, 2012)Oil prices continued to increase as the demand for crude oil intensifies.

The Airline Industry is in an interesting situation. Simply adding a low cost alternative is not enough in the industry. The Internet has made the power of buyers grow with the transparency of ticket prices. This is not something that will change any time soon. Because of this profitability is predominately reserved for low-cost yet distinctive carriers. No consumer wants to ride what they consider a “lesser” airline. Airlines need a way to distinguish themselves from one another while also acknowledging the increased power of buyers.

Two organizations that I choose to compare are Southwest Airlines and Delta Airlines. I noticed that between the two airlines they both give the option for customers to book a flight, hotel, car, or vacation very clear. They place the options on of the page where anyone that is interested in flying with them wouldn’t have a hard time finding it. On the homepage you also notice that there are deals available which interest many customers. Many airlines charge extra for bags, but Southwest and Delta advertise on their website about free bag check-in. In my opinion southwest website has the best site. The colors are vibrant and draw a lot of customers’ attention. Also, I feel like the page is easier to operate compare to Delta. Everything that

Since Continental already locked in their fuel prices for the year I believe that a reduction in the available seat miles per flight would see a large drop in fuel costs. According to the regression results, there is a high correlation between available seat miles and fuel. The regression yielded a cost of about $ .08 for each available seat mile flown. I again used a 10% decrease and the overall costs savings were quite significant. I would expect Continental to incur a fuel expense of $ 499,238,476 in the first quarter and $2,333,641,754 for the year. By comparing these results to the prior estimated fuel costs, there is a cost savings of approximately $ 921,611,677 for 2009. Reducing these available seat miles should not be reasonable difficult considering the potential it has for immense cost savings.

In 2008, JetBlue reported a net loss of $84 million and an operating margin of 3.3%, compared to the net income of $12 million at a 6% margin n 2007 (Barger, 2007). The decline in the years to follow was a direct result of the increase in fuel prices. Low fares and high fuel prices affected JetBlue’s reputation and contributed to downfall of the company’s economic performance.

1 To illustrate, jet fuel is tied to the price of oil and, over the past year, oil prices surged from about $70 to $135 per barrel. Consequently, the price of jet fuel increased markedly, from an average of $1.77 per gallon to $4.20 by the mid-summer of 2008.

A critical factor during a time of high oil prices is Southwest's history of hedging future fuel costs. Southwest is not only able to gain from a lower oil price, they are also better able to budget costs for the upcoming year. (USA Today, 2008). Consumers are starting to cut back on luxury purchases. According to Reuters, “...just 25 percent of respondents rated their financial situation as better than a year ago, the lowest in 27 years.” (Reuters, 2008).

This paper will review the case study of Delta Airlines which was suffering like all its competitors with rising fuel costs which averaged anywhere between 30 to 50 percent of its total operating costs. This paper will answer six questions which will help identify what the company did to handle the high cost of fuel. The questions that I will answer will include the following.

Fuel costs remain a major concern for the entire airline industry. Southwest paid $3.16 per gallon for jet fuel in the third quarter of this year, $1 more than last year, and expects to pay $3.45 per gallon in this year’s fourth quarter. Although airlines are converting to more energy efficient planes, fuel is about 35% of the airlines total operating costs. According to Martin (2012), “Airfares are not rising as fast as fuel costs, partly because airlines realize that passengers will use alternatives if flying becomes too expensive.”