How Fuel Costs Impact Charter Rates
With crude oil prices hitting a 13-year high of $130 per barrel, we want to proactively address how we anticipate the impact on business aviation. The majority of jet fuel is derived from crude oil and is in a similar form, or octane, of what we consider automotive diesel to be. Until we have a significant breakthrough in the ability to have a hybrid form of fuel, there is a significant correlation between raw crude oil costs and the hourly cost to operate jet aircraft.
Outside of parts programs and other direct operating costs, fuel plays a large role in how the charter market prices aircraft. It is common to see an increase at the pumps while filling your car, and then see “Fuel Surcharge” on your next quote. With the market being demand heavy right now, management companies and operators are attempting to recover as much revenue as possible through channels like fuel surcharges.
Applying some averages throughout the duration of an entire flight, to include the higher-burn rates of take-offs, wind, flight speed and other variables, a Hawker 800XP (Mid-Size Aircraft) burns ~291 gallons per hour. Although fuel costs vary from airport to airport, let’s assume the average was around $4 for Jet-A. For every flight hour, the Hawker cost $1,164 in fuel alone. If Jet-A increases to $5, that hourly fuel burn costs $1,455. On a three hour trip, after an increase in jet fuel prices to the aircraft operator, you can begin to understand why the cost fluctuation may result in a higher trip cost to the end-user after the raw cost of operation went up almost $1,000 for the same amount of flight time.
When we see 60% increases in crude oil prices, it is important to have a structured
approach to sourcing solutions for your flight. Whether hedging against operators not quoting their aircraft more than a few weeks out, or automatically adding a fuel surcharge, it is extremely easy to overpay for a charter flight during these volatile times. Some companies are less-likely to pass along fuel surcharges to keep their prices competitive, while other companies will capture as much revenue as the market will bear. The PJC leverages our operator relationships and industry experience to help you navigate every trip to ensure that the cost can be justified.