The Airline Oil Spin

In many respects, the seeds of airline industry’s current problems with rising oil prices were laid years ago by their failure to plan effectively. United Airlines is a great example of this failure.

United Airlines’ 5-year plan of reorganization, submitted in September of 2005, was built on the assumed oil prices averaging US$50 a barrel.

The price for oil settled on the New York Mercantile Exchange at the time United submitted its 5-year plan? $64.37.

It is clear that U.S. airlines failed to adequately plan for what was widely expected to be rising oil prices. United Airlines built its post-bankruptcy financial strategy around “cost-saving measures” like keeping older planes flying longer, which only came back to hurt the company in the end, as older planes, like cars, burn more fuel and need more maintenance. In fact, many U.S. airlines are still flying plane models from the 1970s and 1980s, using up to 30% more fuel on similar flights than newer models of Boeing and Airbus models.

Old Fleets, Few Orders

U.S. airlines’ fleets are some of the oldest in the world, with Northwest Airlines flying the oldest average fleet at 18.5 years. Among Northwest’s fleet, 109 are of the oldest jets in the country, DC-9s, with an average age of 35 years. American has the second oldest fleet at about 15 years, of which 300 are older, gas guzzling MD-80s. The average age of fleets for United and Delta are both at almost 14 years.

Comparisons with non-U.S. airlines are alarming. While many of the planes used by U.S. carriers flying out of Paris’ Charles de Gaulle airport are Boeing 767s, a model from the mid-1980s, most Air France-KLM planes are at least a decade younger, and much more fuel-efficient.

Despite this existing disadvantage U.S. airlines have not made significant steps to modernize their fleets, while their European and Asian counterparts continue to upgrade their fleets by placing substantial orders for new planes. European and Asian carriers have many new planes scheduled for delivery in the next few years. Singapore Airlines, one of the world’s most profitable airlines, has an existing fleet of 97 aircraft with an average age of 6 years, yet have 82 new aircraft on order. Disburbingly, of over 700 orders for the fuel-efficient Boeing 787 Dreamliner, only 43 orders are for U.S. airlines, and of 386 orders of the new Airbus A350, only 18 are for U.S. airlines.