Transparent economics. Are yours?

Last Friday, we talked about the surging rate of fuel surcharges for ocean-going containerized freight and how it will soon affect the price of imported goods.

As you might expect, fuel surcharges aren’t just going up for seagoing freight customers.

It’s hitting air travel customers as well.

This Times UK article talks about the recent, substantial increase in per-ticket airline fuel surcharges. On the flight they checked, the fuel surcharge was about 218 Pounds Sterling for a London to San Francisco flight. That’s $424 using the exchange rate on June 5, 2008.

$424 per seat? Man, I must have packed on a few pounds lately. Let’s look at a little rough math and see what impact this fuel surcharge has on the airlines.

Assuming that a Boeing 767ER (Extended Range, often used for long international flights) flies this route and uses every drop of fuel that a 767ER can carry, the price for that flight’s fuel is $91603.60. That’s 23980 gallons at $3.82 per gallon for Jet A as of May 30 2008, per IATA.

A 767ER’s range is 12,200 kilometers or 7580 miles, according to Boeing. Assuming that means a full tank, then we get 3.16 gallons per mile (rather efficient, aren’t they?) or a current fuel-only cost of $12.08 per mile to fly 7580 miles. Given that we have a couple of hundred people on the plane, that’s not bad.

The trip from London to San Francisco is 5357 air miles, according to InfoPlease.com.

According to Boeing, a typically configured 767ER holds 224 people in a 2 class configuration, IE: coach and first class. 224 people paying a fuel surcharge of $424 add $94976 to the gross receipts for that flight if it is full (as most planes are these days).

Unfortunately, even that $95k of fuel surcharge isn’t covering the 90% increase in Jet A fuel prices in the last year. Not even close. If that flight is full, you aren’t paying for the difference in fuel prices since 2000 (what the IATA calls their baseline or “100 points” price).

You’re paying the entire fuel bill for the flight.

Presumably there has always been a fuel cost component of the airline ticket. Apparently that is no longer the case.

Only thing is, you only flew about 5400 miles. Remember, a full tank flies the 767ER about 7600 miles. A little more rough math means that we left 883 gallons of $3.82 Jet A in the plane upon arrival at the gate in San Francisco (about $3000).

But I’m a generous guy. We’ll call it even for the $3000, assuming that extra 883 gallons over the average gallons per mile fuel efficiency is burned during taxi and takeoff. And we need to keep in mind the safety margin to have the fuel to steer around storms and/or circle incessantly because of delays caused by weather and Presidential candidates using the same airport.

Finally, you might want to lay off the donuts and pack lighter clothes. The airlines are also allegedly considering a weight-based fee.

If there are any airline pilots reading this that have better numbers on fuel, I’m all ears. I’m sure YOU aren’t seeing any of that extra money.

Are the economics of your business this transparent? What would your clients say if they could do this kind of math on your fees? Are you delivering so much value that they don’t even think about it?

The airlines aren’t. You had better be.

Related articles:

NY Times article about steps airlines are taking to make planes more efficient. Smart stuff. Kudos to them for looking at everything, but not just cutting for the sake of cutting.

Quoting from the article:

â??Our fleet is over 500 airplanes,â? said Beth Harbin, a Southwest spokeswoman. â??If you can make a difference on one airplane on one flight, and multiply that by 500, in this day and age that is significant.â?