V-Flyer

Price of crude has halved in the last year from $120 to $60

Might we be seeing a cut in Virgin's fuel surcharges soon?

Hahahaha I crack myself up sometimes!!!

Also if they cut are the surcharges applied at time of booking or time of departure?

Airlines often buy their fuel a long time in advance so even though the price now may be low now they would have committed to buy it a while ago for a higher price.

Same with the gas and electricity sectors too.

So basically they won't until BA cuts theirs!

Fuzzy14 wrote:So basically they won't until BA cuts theirs!

tontybear wrote:Airlines often buy their fuel a long time in advance so even though the price now may be low now they would have committed to buy it a while ago for a higher price.

Same with the gas and electricity sectors too.

I understand where you coming from on this example tontybear, but using your senario that means we must the expect a fare reduction in a year or so irrespective of the current oil price at that point in time. If not, then basically the airlines are taking the pee out of us all and laughing their way to the bank

Hev60 wrote:If not, then basically the airlines are taking the pee out of us all and laughing their way to the bank

As is every energy supplier, bank, supermarket, Internet provider, car company, rail company, corner store...why are we surprised? And remember, some of the provision of pension funds for our dotage is depends on exactly this behaviour.

There is no logic to this argument in my opinion.

Fuzzy14 said the cost of crude oil has halved in the last year. No dispute - fact.

So oil using companies are now stock piling at this low price. Therefore without fail, the price of air fares should therefore come down once they start to use this cheap oil.

Will it happen? - of course it wont

Had the cost of oil gone up in price as it did a while back, then prices would have increased immediately as happened when the dreaded fuel surcharge was introduced.

Agree all the 'suppliers' mentioned by pjh are in business to make a profit but surely us consumers should expect a more 'fair' playing field. However for as long as they continue to get away with it, nothing is going to change.

Finally if the petrol stations can pass on the price of cheaper fuel to us, then so can the airlines. Let's be realistisic, the suppliers & retailers of oil are still making very nice profits otherwise they wouldn't be selling fuel near 30p a litre cheaper than this time last year!

The logic is that a supplier of goods and services will charge what the market will bear.

Aircraft fuel should be much more sensitive to crude prices - they do not carry the tax burden that road fuel has, so the final price has a much larger crude price constituent. If UK road fuel has been cut by around 25% then aviation fuel should be around 50% cheaper. With that and the vastly reduced running costs of the upcoming 787's we should see a vast drop in fares within the next few weeks ....... As the OP says - that ain't gonna happen anytime soon.

The fact is that most airlines no longer hedge fuel, hedging was risky and some got burnt, and the good hedged prices disappeared as fuel stayed high for a long time. Nor did airlines hedge all their fuel requirements, often at the 25% level.

So the likelihood is that airlines are paying the current price for aviation fuel for most of their needs.

The petrol we put in our cars is high because of duty and VAT. Duty is currently a fixed sum of 57.95 p so about half of the pump cost. Whatever the price of crude oil this sum will always be set. Then we pay VAT on the actual price, so at £1.20 that's another 20 p. When fuel prices drop we don't feel the benefit quickly or in large amounts when we fill up our cars because the majority of it is tax.

However, the price of JetA according to IATA has fallen by more than 42% in the last year. Aviation fuel is not taxed but does have some fixed cost element such as refining and distribution.

My conclusion however is that, unless debunked, airlines that charge fuel surcharges such as VS and BA are currently creaming it in and smiling broadly.

slinky09 wrote:My conclusion however is that, unless debunked, airlines that charge fuel surcharges such as VS and BA are currently creaming it in and smiling broadly.

Spot on. If my memory serves me right, LHR (& doubtless LGW) are supplied from a couple of refineries by direct pipeline. Remember back in the fuel crisis of circa 13/14 years ago, there were reports of aircraft flying out of LHR/LGW and then putting down in France / Belgium / Germany / Ireland to top-off the tanks? Same when Buncefield oil depot went up in smoke, LHR flights were affected and could not take off with full fuel loads for a few days.

No way has that fuel been sitting in the refineries storage tanks for months since it cost almost double what it does now. We're being taken for a ride - literally!

Just to add too Slinkys post, if you take the average retail price of unleaded fuel ( 110.9 ppl ) in our area, take off the duty and applicable VAT, the cost of a litre of unleaded is 34.46 pence - this includes the retailers margin of around 3.4 pence

In Dec 2013, retail price of unleaded was 137.9 ppl. Doing the above calculation the cost of a litre then was 56.96 pence, again including the retailers margin.

So a reduction of 22.5 ppl has taken place over the last 12 months or around 39% of the wholesale price which is of course roughly comparable to the percentage reduction in Jet A.

Makes you think !

David

To add, according to IATA if aviation fuel prices remain at the same level then compared to 2014 the industry will increase its profits by $20.3 bn in the next year. So that money is going to go somewhere, it's not imagined.

Ok, ignoring what I reckon is a bit of a pointless argument (I doubt the prices _ever_ go down)...

When did this charge first appear? I flew a couple of times back 2007 onwards and I wasn't in the the Flying Club so wouldn't have noticed or cared about it. Was there a fuel surcharge then? Did it go up when the oil went up?

Kraken wrote:
No way has that fuel been sitting in the refineries storage tanks for months since it cost almost double what it does now. We're being taken for a ride - literally!

That's not how hedging works. It's based on paying a price for a commodity now for delivery at a later time.

There is no stockpile of fuel in storage tanks with VS or BA's or even Stagecoach's (yes bus companies hedge fuel too) name on ready to be drawn down.

Come to think of it when we buy an airline ticket for travel months in advance we are essentially doing the same thing as hedging fuel - paying now for later delivery though at a risk the price could come down but then again we are not exposed if the price goes up.

slinky09 wrote:To add, according to IATA if aviation fuel prices remain at the same level then compared to 2014 the industry will increase its profits by $20.3 bn in the next year. So that money is going to go somewhere, it's not imagined.

paying down debt / making up for earlier losses

shareholder dividend - IAG has started paying one

shiny new planes and lounges

...increase in directors bonus.

Always thought that hedging was 'agreeing to buy a commodity at a fixed price and time in the future'. Didn't think it had to be paid for in advance?

My original post was slightly mischievous, Virgin have to return to 4 quarter profitability before they can start cutting things like the surcharge, and it's market related so they won't until their hand is forced (BA cuts theirs so they have to otherwise customers will walk).

As tontybear says, oil products are made on demand with very little reserve, there is no stockpiling, there's no tanks dotted about the country. All the hedging is done on a future purchase basis.

Without breaking the official secrets act, yes there's a 10" pipeline from Fawley to Heathrow and to Gatwick. The Heathrow one can carry various products and goes onward to the Hertfordshire Oil Storage Terminal (Buncefield) and from there off to Lindsey.

airconbob wrote:...increase in directors bonus.

Always thought that hedging was 'agreeing to buy a commodity at a fixed price and time in the future'. Didn't think it had to be paid for in advance?

Yep... you can either commit to buy at a future price through a 'futures' contract or take an option to buy at a future price through an 'options' contract. Both come with upfront costs (margin/option premium), but you're not paying the full cost of that future priced commodity in either case.

Although the principle of hedging works both ways - you could equally be contracting to sell at a future price if you think the price of that commodity is going to fall further, and you wanted to lock in a higher price.

Being slightly facetious, hedging also implies that you have a genuine risk that you need to mitigate. Whereas the airlines are never going to cut YQ, so frankly, it's just speculation on their part if they want to take a punt on a better future oil price and lock it in now. If they get it wrong, well, YQ, can just go up a bit more can't it...

Haven't VS cut their fuel surcharge recently? Or is that only on redemptions?

daharris wrote:Haven't VS cut their fuel surcharge recently? Or is that only on redemptions?

They cut them on economy seats because they were 95% of the ticket price, and thus reward seats were utterly pointless. Little bit less now, but no great saving.