An eye trained on the rearview mirror is watching aviation fuel prices going upward. Many years ago (2014) the axiom was established, "The lower the price of crude oil the older the airplane in your fleet is best". In fact, many airline fleets sought after the used airplane market for a lower purchase price thus allowing for a greater fuel burn when Jet A was cheaper.
It was fashionable for airlines to go after inventory from lessors or others who were seeking to unload old inventory to anyone with a fat checkbook. So the axiom grew out of opportunity and Boeing suffered additional sales loss for its super-efficient 787 products due to low fuel prices. In fact, airline fleets had to dust off its opportunity math models considering cash flows and profits while operating older equipment versus buying more expensive equipment like the 787.
Recently it was said by Randy Tinseth, Boeing’s vice president of marketing,
"Aircraft replacement makes sense for airlines when oil reaches $65 a barrel."
As of Tuesday morning, the price per barrel of Brent Crude was more than $74.
That all being true, a pent-up energy has grown from old equipment getting older while ignoring efficiency becomes the ban of having higher fuel prices. I'll call the high price of crude the "Blue period", signaling a market shift from having old airframes to having more expensive and efficient new aircraft. The factors to consider is the savings obtained from a more efficient aircraft burning less fuel as compared with an older aircraft burning more fuel. At this time it could be up to 25% fuel volume savings using higher priced fuel. Or a 30% maintenance improvement
Cash flow models are humming away in some computer under a desk supporting a huge screen for office meetings. The old fuel model may have had $1.99 per gallon fuel price. The new model may have a $3.99 a gallon price for Jet A, worldwide. The old (767-300) aircraft burning 12,000 gallons, going far, with full fuel load will compete against an efficient model that burns 3,000 gallons less than an older aircraft on the same route. At a $2.00 a gallon price variance from old to new fuel price, the new having a 3,000-gallon advantage, therefore, saves an airline $6,000 a trip not counting the new technology maintenance savings found on the ground, or in the avionics. The savings could easily reach a $10,000 in savings going long one-way.
Buying new equipment may make more money than hanging onto older and cheaper equipment if fuel prices rise higher than $65 per barrel of crude oil. The financial performance models in an office building near an airport may scream, " buy new equipment" such as Randy Tinseth suggests in above comment.
Old equipment has the following conditions:
· Lower capital (purchase price)
· Lower interest costs (loan costs)
· Higher maintenance cost per trip
Naming a few 787 costs conditions:
· Higher Capital outlay (purchase)
· Higher interest costs (loan costs)
· Lower Maintenance expense
· Lower Fuel Costs
· More efficient operational functions (such as onboard smart routing tools)
If a new 787 goes 500 trips a year saving fuel costs over old equipment then it may save $1.2 million a year in operational costs which would contribute towards an advantage over buying old equipment flying on cheaper fuel which no longer exists at this time. Randy Tinseth, stated an obvious market condition. Airlines will have to buy new equipment sooner which is better than later as fuel prices rise.
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