The ground support industry's source for news, articles, events, product and services information.
Issue link: https://groundsupportworldwide.epubxp.com/i/618927
10 GROUND SUPPORT WORLDWIDE DECEMBER 2015 / JANUARY 2016 COVER STORY Grantham reported in the very same article that Delta would cut an undisclosed number of jobs from the company's "man- agement and salaried" workforce over the next few months to "boost productivity." In the same week as Delta's announce- ment, American Airlines, Southwest Airlines and Alaska Air Group all reported record quarterly profts. Even with considerable C-suite management turmoil, both United and Air India reported proft increases and a return to proft, respectively. And that was just in one week. Airline profts, as key indicators for industry-wide growth, are booming. Why then, are airlines hedging their future projections? Fuel prices. "With volatile fuel prices and revenues under pressure," Paul Jacobson, Delta's chief fnancial offcer, said in an October state- ment. "We are using the current environ- ment to evaluate and prune costs across all parts of the business, including our overhead functions, making sure we're investing in the right parts of the airline and at levels we can sustain over time. Fair enough. Delta's third-quarter revenue was, in fact, down one percent compared to 2014 and, according to Jacobson, the com- pany's fuel price fortune "will drive a $750 million beneft in the December quarter." To a tee, airlines across the country are warning that proft levels of this nature are currently unsustainable due to fuel price volatility, but Airlines for America (A4A), a lobbying group for the airline industry, issued a similar statement last year as well. "Declining fuel prices are good news for everyone as they lower personal costs and enable industries such as airlines that rely heavily on fuel to reinvest in their business and their customers," the release, dated December 14, 2014, said. And, in fact, A4A estimated in 2014 that airlines were reinvesting $1 billion per month back into operations – including GSE and other equipment purchases. That number has only grown with a year of proftability, according to A4A. "Finally, U.S. airlines are growing once again," Melanie Hinton, managing director for airline industry public relations and communications at A4A, says. "This has allowed airlines to reinvest in operations and equipment and on average $1.3 billion per month into the passenger experience offering enhanced infight entertainment options on aircraft; adding bigger, newer planes to their feets." What then, if profts are driving growth throughout the aviation industry and airlines insist that lower fuel prices are the key driver for their increased profts but those prices can't be relied upon to continue the trend, is the industry supposed to do? Don't Be Crude Fuel prices are normally the largest expense for airlines, and often in all of aviation. According to A4A, after combining SEC flings for 10 of the United States' busiest airlines, that wages and benefts (29 percent) have replaced fuel costs (24 percent) as the largest operating expenses for the airline industry. The per gallon cost of fuel has dropped 37.1 percent compared to prices in Q3 2014. Even with relatively fat revenues, that creates a massive amount of room to breathe for airlines. But that's all fairly common knowledge. What happens next? "The consensus amongst major oil indus- try associations—including the Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA)— is that crude oil will remain relatively low, below $80 per barrel, heading toward 2020 due to plentiful supply and falling demand across developing countries," CR Sincock, managing director of business development at Avfuel, says. "But also a weakening supply growth outside of OPEC resulting in a gradual rise in price. This is consistent with the U.S. Energy Information Administration's pro- jections that West Texas Intermediate crude The per gallon cost of fuel has dropped 37.1 percent compared to prices in Q3 2014.