By Robert Wall
LONDON--Falling oil prices promise lower fuel costs for many of
the world's airlines. They also may give older jets a new lease on
life.
Many airlines have raced in recent years to buy new,
fuel-efficient jets to cut down on fuel bills-which typically make
up about 30% of an airline's operating costs. Amid today's falling
oil prices, there's suddenly less urgency to do that.
Air France-KLM SA has previously said it may delay adding new
planes to cut capital expenditure amid its deteriorating financial
outlook. Late Thursday, it said that lower oil prices may make that
easier to do because it makes their existing, older planes
competitive again.
The International Air Transport Association said earlier this
month that it had raised its 2014 collective industry profit
forecast to $19.9 billion, up from $18 billion because of the
benefit expected from lower fuel costs. Profits should rise further
next year to $25 billion.
The industry's fuel bill this year could end up 2.4% below last
year's level, the IATA estimates, and it is set to fall another
5.6% in 2015. That's despite forecasts that carriers will fly more
and increase total consumption.
Not all airlines will come out winners.
Many carriers, burned by oil price volatility in the past, hedge
their fuel bills--agreeing to pay a predetermined amount for future
jet-fuel deliveries. British Airways-parent International
Consolidated Airlines Group, for example, has locked in 74% of
consumption over the next 12 months, also above market rates.
But the oil-price drop will allow most carriers to be more
flexible about flying older jets longer. At current jet-fuel
prices, 10- to 15-year old, single-aisle jets--like the
earlier-generation Airbus Group NV A320 or the Boeing Co. 737, are
10% to 15% more cost effective than newer ones being delivered,
according to estimates by UBS. Those older jets even have a small
edge over the crop of next-generation jets--the Airbus A320neo and
Boeing 737 Max--that the plane makers are set to introduce in
coming years. Older, wide-body jets may also be more attractive now
than some of the newer models.
"The usage of older aircraft is again more attractive and
profitable for our customers," said Michael Schreyögg, program
chief at Germany aircraft engine maker MTU Aero Engines. "There is
a risk" some new plane order will be cancelled, though that had not
yet occurred, he told investors recently.
Aircraft such as the Boeing 757, used heavily by U.S. airlines
on transcontinental routes and flights to Europe, could remain in
service longer than anticipated, Mr. Schreyögg said.
MTU also believes that some Boeing 747 jumbo jets--put out of
service when fuel prices were high-start becoming financially
attractive again with fuel costs below $80 per barrel. Brent crude
was trading around $60 per barrel Friday.
Airlines' gains could mean plane makers' pain. Boeing and Airbus
have enjoyed a record run of order bookings from airlines. A key
selling point: they promise double-digit percentage cuts in fuel
burn over jets now in service.
Boeing and Airbus have played down the potential impact of lower
oil prices on their production plans. The new Boeing's 787
Dreamliner was conceived as a fuel-cost saver at $40 a barrel for
oil, the planemaker's marketing chief, Randy Tinseth, said on his
blog this week.
Airbus's chief operating officer for customers, John Leahy, said
last week that short-term fuel changes don't alter fleet plans.
"You aren't buying airplanes for one-year or two-year operations.
They're not cars."
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