Oil hasn’t been this cheap in a long time. Cheaper gas is certainly easier on the wallet, especially for airlines. Because of the low prices, many predict that 2015 will be a good year economically for the aviation industry.
The International Air Transportation Association estimates that the collective global net profit for airlines will be around $25.0 billion. In a press release, they say that 2014’s profit should be around $19.9 billion, which is higher than their initial predictions.
Lower oil prices and stronger worldwide GDP growth are the main drivers behind the improved profitability.
Brian Pearce, the IATA’s chief economist, told the New York Times that cheap fuel, “is unambiguously good news for consumers.” The group expects to see a drop in fares of about %5. Whether or not tickets are actually getting cheaper remains to be seen. This past Thanksgiving, airline tickets were much more expensive than they were in 2013 despite lower fuel costs.
The aviation industry has been trying to find ways to cut down on fuel expenses for quite some time. After all, jet fuel accounts for 26% of the industry’s costs, according to the IATA. Many of the newest passenger planes have been designed to maximize fuel efficiency, which is one way of dealing with the price of jet fuel. Another option is changing what is used to fuel aircraft.
A few years ago, Boeing, Embraer and Airbus started looking into the development of biofuels as an alternative to traditional jet fuel sources. Boeing saw the fruits of their research Dec. 2 with a successful test flight that used their “green diesel” fuel.
The company powered its ecoDemonstrator 787 flight test airplane yesterday with a blend of 15 percent green diesel and 85 percent petroleum jet fuel in the left engine.
In Boeing’s press release, they note that green diesel is different from biodiesel. Their fuel is made from, “vegetable oils, waste cooking oil and waste animal fats.”
With a wholesale cost of about $3 per gallon, inclusive of U.S. government incentives, green diesel approaches price parity with petroleum jet fuel.
The future of alternative fuels in aviation may largely depend on the price of oil. If it remains low, alternative sources of energy may not be able to compete.