1400 Words on The Airline Industry

1400 Words on The Airline Industry

 The Numbers. In 2007, The United States used 20.7 million barrels per day (mbpd) of crude oil and petroleum products. About 2.2 mbpd of this are considered Natural Gas Liquids or Liquified Petroleum Gases. The other 18.5 mbpd of crude oil is refined into three main products – gasoline, diesel fuel, and kerosene-type jet fuel. Roughly speaking, these products are produced and supplied as follows: 9300 thousand barrels per day (kbpd) of gasoline, 4200 kbpd of diesel fuel (a category which includes both the liquid transportion fuel used in most large trucks and the home heating oil), and 1600 kbpd of jet fuel. The remaining 3 or 3.5 mbpd of crude oil is refined into various miscellaneous products. [as we shall see, this 1600 kbpd or 1.6 mbpd of jet fuel is the equivalent of 4500 Boeing 747 transcontinental flights from Boston to LA per day]

A Breakdown of the Refined Product Numbers

 Recent Changes. Work I’ve done recently shows jet fuel demand down substantially in the first 5 months of the year. It continues to fall and presently is about 10% below last year’s levels. Jet fuel demand, unlike gasoline has not shown consistent gains over the last decade and flutuactes erratically, although an overall seasonal pattern is discernable. In comparison, gasoline consumption usually increases by a fairly steady 1 or 1.5% per year. It is down 1% so far this year from the same period last year.

The Airlines

“Over all, the number of scheduled flights in the United States dropped 3 percent in May, or 22,900 fewer flights than in May 2007, according to the Official Airline Guide.”
      -New York Times

Using these numbers we can quickly see that there are about 9,000,000 commercial flights per year in the United States or about 25,000 per day. This number is much higher than the 4,500 number I have derived – reflecting the more diverse realworld picture of many different sized planes flying different distances. This number probably includes some very small planes, but also omits private flights (of which there are a huge number and chartered flights). The details of the number, distances and types of flights is beyond the scope of this introductory analysis. What is important for now is the overall level of travel and how it is changing with a rapidly increasing oil price. In a second installment, I’ll attempt to delve deeper into the numbers regarding different types of planes and their fuel efficiencies.

The Airlines – Part II Using numbers from The Air Transport Association, it appears that about 840 million people fly every year. The US only has a population of 300 million, so obviously some people are flying more than once. It is unclear whether this number is counting the number of times a passenger boards a commercial flight, the number of complete one-way trips, or round trips. But simply dividing 840 million by the 9 million flights yields about 90 passengers per plane. It is unclear what percent of total capacity this represents or how many seats have remained empty. A heavy reduction in flights nationally probably won’t reduce the availability of long distance distance travel between major hubs, just the convenience of multiple flight times and obviously the pleasure of a near empty plane. As with many things in the American economy, there is a lot of slack and a lot of gains that can be achieved quickly through the elimination of obvious waste. One note of interest is that most of the large commercial jets (Boeing and Airbus) I looked at have seating capacities of 150, 200, or above, so clearly there must be a lot of spare capacity actually flying or a huge amount of flights are done on much smaller planes.

Tickets and Pricing. Looked at differently, these same numbers produce another result. If we use the rough numbers of 1.6 mbpd of jet fuel, 25,000 flights per day, 90 passengers per flight, and $4 per gallon of jet fuel, the average cost per passenger is $120 per flight. If this on average makes up (according to industry sources) 40 percent of the cost of each ticket, then the average ticket price is $300. Assuming that all fuel charges eventually get passed on to the consumer, a doubling of the fuel price from $4 to $8 will result in a 40% increase in the cost of flying (an extra $120 over $300).

Now let’s look at some actual numbers. These are one-way prices based on sample round-trip prices. All flights have been scheduled for the same 2 weeks in September. I’ve provided a high/low range and typical plane types from samples on Orbitz. Boston to L.A.:$208/$288 (757/737), LA to Honolulu $155/$400 (757/737), Chicago to Milan: $400/$550 (A330/A340). As you can see these prices fit in nicely with the “average” base case I’ve used above. I didn’t try to make anything match or fit, I did this completely independently. For the record I did this first almost a week ago for the same cities but some other time-frame (near but not exact). I got prices at the time as much as $100 different in either direction.

Something positive may happen with efficiency. News concerning drastic cuts of flights by the airlines and some carriers going bankrupt and completely out of business may in fact be a good thing in a few ways. For the previous year, prior to the latest explosion of oil and fuel prices, the big news in the airline industry was the horrendous on-time record of all the major carriers, every manner of airport and runway delays, and a very dissastisfied American customer. It is hard to see how a reduced number of planes in the sky could have any effect but to lower jet fuel usage in two ways. First, obviously, there will be less flights. But the reduced amount of traffic in the air should reduce the amount of jets idling on runways, circling in landing queues around congested hubs, and lower the overall gate-to-gate time for the planes that are flying. If recent news about American Airlines is any indicator, the carriers will be retiring and scrapping planes – most likely the older, less efficient models.

The problem of plateauing production and the demand-destruction fallacy. Before I wrap up this introductory piece on the airlines, a word about the history of efficiency and the reality about American oil usage. It is often pointed out that oil usage increased throughout the days of stagflation in the 1970s and coincident with and following the second oil spike of 1979-1981, oil consumption fell by 15%, from which point it took 15 years for it to return to its highs. Conservation, massive gains in efficiency, and a transition in the energy mix are all correctly cited for this “slowing” of consumption growth. But let’s take a closer look at an important statistic. Oil use per capita.

In 2007, The United States used a little over 25 barrels of oil per person. In 1969, the figure was 25.6. It bloated to about 31 barrels in 1978 before dropping to a low of 23.8 in 1983. 25 barrels per year is the equivalent of 2.9 gallons of gasoline per person per day, or every single person driving alone 87 miles each day in a car that gets 30 miles to the gallon. This is the highest of any large, industrialized nation on earth. To put this in perspective consider the next highest contestants on the list. Japan: 15, Germany: 12, UK: 11. China, the latest big consumption story, only uses 2 barrels per person per year.

So for all the talk about efficiency gains, we still use as much person as we did 40 years ago and we’re still Number One. Good Job.

The following chart shows the likely forced gains assuming highly probable population growth of 0.8% per annum and a 1% yearly reduction in oil use in 2008 and beyond. We should be hoping for more drastic changes like those in 1979-1983 which might actually drive the message home.

What will be interesting to watch is what will happen in an environment of a growing global economy and plateauing or decreasing oil production. Any excess supply created by demand destruction in the United States will be quickly devoured elsewhere. All exports are up for auction. How long can we afford the highest bid?

Part II In the second installment, I’ll be taking a more detailed look at planes, their specifications, and how they are mixed in the international fleet. I’ll be looking more closely at their fuel usage. And finally I’ll be looking at the airlines themselves and their sorry record.

The World’s Largest Airlines

The Jetmakers  by Charles D. Bright

[ Note: I made a huge mistake (or omission) is these admittedly rough calculations. I know Idid not figure in military consumption because it is only a small percentage of the number. However, I made the assumption that everything else was basically commercial passenger travel. I completely neglected to figure in commercial cargo/freight flights such as Fedex, UPS, USPS, and probably a thousand other carriers. I will be correcting/addressing this in future updates and pieces.]

16 Replies to “1400 Words on The Airline Industry”

  1. Bravo, JR ~ a fantastic post! It seems safe to say that perhaps someday air travel will again be the luxurious, exclusive, friendly, amenity-filled experience it once was, with smaller planes and more drinks served. Of course, it will cost more, but, hey, that serves to keep the riff-raff out.

    All we need now is a high-tech, domestically-manufactured plane to fit the role once occupied by the venerable DC-3.

  2. Awesome post JR. Really looking forward to reading more. I’d love to share this information with others, like my physicist colleagues who are deeply concerned about it.

    Some random thoughts.

    How much are US airlines currently subsidized? I know the airports are essentially gifts from federal and state/city governments, FAA, TSA oversight, other Commerce Dept. services. I wonder what else might be in the offing, or just how important it is to the US to continue flying its middle class?

    Your comment: “What will be interesting to watch is what will happen in an environment of a growing global economy and plateauing or decreasing oil production. Any excess supply created by demand destruction in the United States will be quickly devoured elsewhere. All exports are up for auction. How long can we afford the highest bid?”

    This is of course a more general worry, and one that keeps nagging at me. I completely agree with the logic. It’s only a question of how much longer. And, I keep thinking of the Argentine analogy. Their country was in a hyperinflationary recession. The government was hard pressed to “do something”, so they declared war on the Falkland Islands, and by extension, the UK. Even with the US supporting the Brits (free use of AWACs for example) the Brits nearly lost that war. As it was, they found out that it was false economy to build their ship superstructures out of light weight but highly flammable aluminum. But, I digress… The point is, I think a US foreign war is in the cards, in addition to the Iraq-Afghanistan wars. The US might try a Sudetenland-type maneuver. By this I mean either an Iran-Saudi takeover on trumped-up “concerns” and/or a Naval blockade of the Persian Gulf, with more tankers directed towards the US, and fewer toward Asia. It would be piracy of course, but whoa be unto the ones that try to stop it. It’s just the big dog trying to keep fed. End game for free-market globalization. Scary it could be coming so soon.

  3. Hi JR. Good work! I’ll be reading it more closely later, but after a quick look was wondering what portion of annual jet fuel and av gas requirement goes toward military needs compared to commercial and civil. Poked around, and to that end, here’s a link that may give some useful summary information, although it’s a couple years old.

    “In fiscal 2005, DESC will buy about 128 million barrels of fuel at a cost of $8.5 billion, and Jet fuel constitutes nearly 70 percent of DoD’s petroleum product purchases.”


    DC-3, coolest looking plane ever. Like a ’57 Chevy.

    Have a great holiday everyone!

  4. JR,
    You climbed the numbers tree faster than I could have – well done.
    Also, many carrier based fighters run on what is essentially diesel – this gives more operational flexibility as the same fuel is used for the ship’s turbines and the aircraft’s. Probably makes the calculations slighty easier for DoD usage.

  5. Perhaps the average passengers/flight you derived is unexpectedly low at 90 because of growth of regional jet use by airlines. Embraer and Canadair regional jets (very common now) typically have between 40 and 90 seats.

    This article is from 2007 and mentions trend toward regional jets. Although it’s dated and does not reflect current economic trends (i.e. re fuel cost and slowing US economy), it does speak to the profound change in the aircraft fleet mix that occurred through the 2000s.


    “Since 2002, domestic traffic by mainline airlines has increased 3.6% in terms of revenue-passenger miles, which is the number of miles that paying customers are flown, Airline Monitor says. But traffic on airlines’ regional partners — which fly the smaller aircraft — is up 196%. The average size of jets flown by airlines, including the widebodies on foreign routes, is 137 seats, down from 160 a decade ago.”

    I read somewhere that domestic airlines expect to operate at 85% capacity this summer (sorry, no source). Don’t know if that’s typical of last couple years.

  6. Dave? What? Oh yeah yaw, hahaw, this means sumthin! Hot frellin’ Tuna. Live at the Filmore. Uncle Sam Blues.

  7. JR, very interesting. I just spent about an hour trying to find something that you might find useful, but it’s hasn’t been easy! Hats off to you for climbing that tree, as Uncle Y says. Most of the studies (even the ones published as recently as last year) seem to be prepared by knuckleheads who are assuming the availability of inflation-adjusted $2/gal fuel until 2030, and other nutty things.

    One thing that seems reasonably safe to assume (perhaps as a simplifying assumption for your own calculations) is that there are not likely to be significant fuel burn efficiency gains in aviation, at least in the short term.

    “The current dilemma of two major airlines in replacing their short/medium haul jets
    illustrates the need to allow for the fact that aircraft will be in the airline’s fleet for 20-
    25 years. Current replacement aircraft only offer 15-20% better fuel burn, or nearer
    1% a year over the lifetime of the aircraft in service.”

    Well, at least the detached-from-earthly-reality trend watchers have considered that there would likely be an environmental price to pay in a (hypothetical) world where growth in aviation necessarily tracks GDP or something of the sort. LOL!

    Summary of fuel prices at 3639 FBOs nationwide… updated regularly. Nudge might want to add this to her morning rounds… ;-)

    [Just for fun…]
    Learning to fly… scroll down to the DVD courses.

  8. Holy crap JR- that was an excellent analysis. Next let me know how you can string together 1400 coherent words while drinking 14 beers.

  9. Hey Holmes, how did your test go? Didja pass?

    WRT JR military fuel usage, I can only humbly submit this article from early April on MSN-


    Overall, the military consumes about 1.2 million barrels, or more than 50 million gallons of fuel, each month in Iraq at an average $127.68 a barrel. That works out to about $153 million a month.

    You’ve called me a douche before JR so I can take it again if I’m off base. Just tryin’ to be helpful.

  10. Hey TP, got your drink on? Sounds like a good plan.

    I tried unsuccessfully to post something here at ZK, so instead I e-mailed it to JR. Maybe he’ll post it for me.

    Did I pass my test? Apparently not.

    I liked that MSN article you linked to. I think they have plenty of fine articles. Kind of ironic (or maybe fitting) how so much more fuel/soldier is being used in Iraq as compared to WWII.

    That muthafucka george dunbar betta not sho his commodtess tradin’ black ass round here! Not that we’s gots anyting against da brudda’s or anything. Assholes of all cullas is welcum hear.

  11. Holmes, I would have responded sooner but I couldn;t find my ebonics dictionary. Now I can say with all confidence- I’s down wid dat, nigga!

  12. Holmes, I can almost hear your voice drop a few octaves when you write that ebonics street jive, mon.

  13. Good grief JR, I’ll actually have to drop some planned stuff tomorrow and read all this material you keep finding. Feeling a lot like poor Mickey in the Sorcerer’s Apprentice, trying to stop those brooms with the pails. It’s all good. I think by the time this is finished (?) we will be closer to knowing what’s in store for US aviation. You might want to assemble this stuff and do a guest post on TOD!

    I can foresee it getting so bad for Hawaii that the military may have to step in to keep passenger flights going in and out. An active fed would insure that that event doesn’t come to pass. It could be a security risk to divert military flights.

  14. Dr. Doom, my voice has returned to its normal register now. Guess I can change back into dorky clothes now too.

    Just to clarify, JR at 12:52 was posting something for me that ZK (for some unknown reason) wouldn’t let me post. However, and this I must say, it’s no small compliment if you thought that the post was authored by our fine host.

  15. Freekin’ awesome, JR. No crap, just lettin’ the data speak for itself.

    I expect the airline industry to be a much different-looking beast by this time next year.

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