4 fold increase in Qantas fuel price and we need a second airport in Sydney?

There is a lot of press at the moment about whether the carbon tax is a significant influence on the financial performance of Qantas and Virgin Australia. It’s a good distraction from the elephant in the room – fuel price.

The peak oilists seem to have gone quiet in recent years but I did come across this one recently via flipboard crudeoilpeak.info and their fascinating and Qantas data filled article on the end of airlines.

I think the article is very well written (being a data nerd myself) and I think it presents the data and facts about the current Qantas an likely Virgin Australia financial performance.

The image from crudeoilpeak.info sums it up well.

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The price of fuel has increased 138% since 2005 where as passenger kms travelled has only increased 24%.

So yes, the $90m carbon tax bill that is being floated as significant for Qantas pails into insignificance when you look at the overall fuel bill of a likely $4.6b in FY2014. That’s only 2% of the fuel bill. That would be like us paying an extra $3c per litre on top of $170/litre at the fuel pump.

What has helped until recently has been the strong AUD against the USD. Our slightly out of parity dollar meant that we were getting a price reduction on oil.

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Since 2009 we were getting around a 5-10% reduction in oil cost as the AUD was higher than the USD. But as the AUD slips below the USD we get an uplift in oil cost. If the AUD sits at 0.9 to the USD then a $110USD/bbl now becomes a $122AUD/bbl. When oil gets to $125USD/bbl then we will pay $138AUD/bbl – that’s financial crises levels.

Any cost on a business has an impact on it’s operating profit, so yes the carbon tax is a cost on Qantas but the rise in fuel cost makes the carbon tax insignificant.

So if our domestic airlines such as Virgin Australia and Qantas are struggling to make money with the current revenue per passenger, and if they increase the fares the number of passengers will decrease and therefore so wil revenue then we are likely to see a declining number of passengers flying domestically within Australia.

Which then begs the question. Why are we pushing ahead with a second airport in Sydney and stalling on high speed rail!

2 Comments on “4 fold increase in Qantas fuel price and we need a second airport in Sydney?

  1. Yes aircraft use fuel. And airports environmentally trash about 5km around the airport.

    High speed rail between Melbourne & Sydney trashes a corridor 1,000km long and 2km wide and is capital cost prohibitive.

    • Hey Vern

      Very good point. I wonder what the 30 year lifecycle impact would be of the two? I’m sure someone must have done that somewhere.

      But what is interesting is that if the number of passenger kms declines or even stays flat because of increased cost of flying do we need a second airport in Sydney? Or even high speed rail?

      Simon

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