Fuel is usually the second-highest expense for an airline
next to labor.Therefore, fuel price increases are a major
contributor to rising operating costs in the airline industry.
A Merrill Lynch analyst indicated that for every $1
increase in price for a barrel of fuel, the airline industry
experiences a $450 million loss in pretax profits.
According to the FAA, jet fuel costs rose by 20.1 percent
in 2004, 40.5 percent in 2005, and 30.4 percent in 2006.
In 2006, fuel costs became JetBlue’s largest operating expense
at 33.65 percent. The FAA forecasts fuel costs
will remain high for the next several years. Neeleman
seriously considers fuel costs and is investigating alternative
sources of energy, such as liquid coal. Because the United States has an abundant supply of coal, Neeleman
is urging his customers to support a new bill to fund additional
coal-to-liquid plants.
Airlines engage in fuel hedging in order to manage
unpredictable costs. However, the jet fuel commodities
market is illiquid, and it is especially difficult for the large
airlines to hedge sufficient quantities of fuel. JetBlue
is increasing its efforts to systematically hedge against
future fuel needs. JetBlue also seeks more efficient fuel
usage through the planes purchased and improved flight
planning.