Tue, Mar 17, 2009
"We'll Enjoy It While We Have It"
The recession has been almost uniformly bad news for airlines,
but the industry has found one silver lining -- Jet-A fuel is
piling up at refineries, causing its price to plummet.
The Fort Worth Star-Telegram reports the cost of refining jet
fuel has fallen from about $25.50 per barrel of crude oil a year
ago, to an average of $21 in January and $15 in February. One week
ago Tuesday, it stood at just $4 a barrel.
For airlines which hedged too much of their 2009 fuel needs at
prices which now seem high, the drop in what's called the "crack
spread," or the costs of refining, are especially good news. The
hedge contracts lock in the cost of the oil per barrel, but not the
refining costs. John Heimlich, chief economist for the Air
Transport Association, calls the savings for airlines,
He says refiners who shifted production capacity to jet fuel as
auto gasoline consumption declined have now created a glut. "There
is a time lag in terms of how quickly they can shift their
refining, so you still have a lot of excess inventory," Heimlich
A one-dollar drop in refining costs saves the industry an
estimated $400 million a year.
But, noting the crack spread rose suddenly to $60 per barrel
after Hurricane Katrina, Heimlich is cautious in his optimism.
"We’ll enjoy it while we have it, and take every penny we can
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