Want to gauge how well US airlines are doing in controlling fuel costs? Try the word “gauge.”
US airlines all reported solid quarterly profits this week and again touted how they were able to hedge, refine, design, merge, cut or slim their way to fuel-efficient gains. That includes the term “upgauging” — basically the equivalent of supersizing snack meals for an industry that all but removed snacks, at least the free ones.
Delta Air Lines President Ed Bastian explained in the company’s earnings conference call: “We’ve been adding a bit of capacity in the US, but that’s coming through the form of an upgauge strategy, which is…very cost-effective and in fact, reducing the amount of flying we’re doing in terms of volume, but increasing the size of the aircraft.”
In other words: still one container, but a bigger drink. That leads to less fuel than adding another plane to meet higher passenger demand than the same time last year. So while capacity rose 2.6% for Delta on the quarter, expenses only rose 2%. And planes remain packed near record levels.
Delta’s fuel expenses declined $81 million and its per-gallon rate of $2.97 was among the lowest of all the airlines. The airline is generally considered among the most aggressive in fuel control efforts: it bought the 185,000 b/d Trainer refinery in Pennsylvania last year that finally showed a quarterly profit, although only $3 million. It moves swiftly on hedging positions, sometimes showing big losses, but not in the third quarter with $67 million in gains. It was the first to do a megamerger, with Northwest in 2008, and has a newly formed partnership with Virgin Airlines.
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But all US airlines have been flying in that same direction since the recession. United Airlines, for example, this week unveiled slimmer seat designs it will roll out to 500 planes. The design was “focused on customer comfort, revenue generation and fuel efficiency,” President Jeffrey Smisek said in an earnings call. Fuel-saving seats? Well, that comes just months after United became the first to trial a new winglet design to streamline airflow and save nearly $200 million in annual fuel costs for the fleet.
Jet fuel prices fell slightly on the quarter but remain more than three times higher than a decade earlier and have grown into more than a third of airline expenses.
Capacity was finally returning into the system, but cautiously. Scott Kirby, president of US Airways, which is maneuvering to merge with American Airlines into the world’s biggest, shows a gauge of that thinking: “Most of our capacity growth in the past couple of years has been through adding gauge to aircraft and utilizing our aircraft more and putting more seats on the airplane. That’s been very efficient.”
And President Gary Kelly of Southwest Airlines, working through the third year of its merger with AirTran when crude oil was $80/b, not the $100/b of today: “We’ve been trimming flights across the country,” he said in an earnings call. “(But) it’s very misleading considering that the gauge, it’s changing dramatically. So you’ll be seeing 717s replaced by 737s in the trips. In other words, the trip count won’t equate to the seat count and I’ll just ask you to stay tuned on that.”