Allegiant Air the most Profitable Airline despite being the least Fuel-Efficient

Posted by PITHOCRATES - September 21st, 2013

Week in Review

When people fly on vacation they’re about to spend a lot of money.  And a big cost is airfare.  Which they will try to book in advance to lock in some low prices.  This is what people think about when they are about to fly on vacation.  Not carbon emissions (see America’s greenest airlines by N.B. posted 9/17/2013 on The Economist).

IN THEORY, fuel efficiency should be a win-win proposition for airlines. Burning less fuel is better for the environment and the carriers’ bottom lines—fuel is generally their biggest single cost. That’s why one finding from a recent fuel-efficiency study is so surprising. In a new report (pdf), the International Council on Clean Transportation (ICCT) found that Allegiant Air, the most profitable airline on domestic American routes between 2009 and 2011, was also the least fuel-efficient airline during 2010.

…The upshot is obvious: according to the researchers, the financial benefits of fuel efficiency have not been enough to force convergence—”Fuel prices alone may not be a sufficient driver of in-service efficiency across all airlines…. Fixed equipment costs, maintenance costs, labour agreements, and network structure can all sometimes exert countervailing pressures against the tendency for high fuel prices to drive efficiency improvements.”

So if the bottom line cannot force airlines to be more fuel efficient, what can? The researchers suggest that airlines can start by making more data available to the public…Cars come with fuel-efficiency ratings, and appliances come with energy-efficiency stickers. Maybe flights should include that kind of data, too, so that concerned passengers can make an informed choice.

Allegiant Air is a low-cost no-frills airline that caters to people going on vacation.  And when you’re on vacation you are taking a break from worrying.  About the bills.  The job.  Even the environment.  You may drive a Prius back at home.  But for two 4-hour flights a year (to and from your vacation spot) you’re just not going to worry about carbon emissions.  Because you’re on vacation.

Allegiant Air flies predominantly MD-80s that sit about 166 people.  An MD-80 is basically a stretched out DC-9.  These have two tail-mounted turbojet engines.  The least fuel-efficient engines on planes.  But these turbojet engines are small and can attach to the fuselage at the tail.  Allowing it to use shorter landing gear.  These planes sit lower to the ground and can be serviced with the smaller jet-ways you see at smaller airports.  Where Allegiant Air flies out of nonstop to their vacation destinations.  People like not having to make a connecting flight.  And will gladly dump a few extra tons of carbon into the atmosphere for this convenience.

The Allegiant Air business model includes other things to help keep costs down.  They are nonunion.  They also fly only a few flights a week at each airport.  Allowing a smaller crew to service and maintain their fleet.  These labor savings greatly offset the poorer fuel efficiency of their engines.  The airlines that have unions (pilots, flight attendants, maintenance, etc.) all share something in common.  Recurring bankruptcies.  Which Allegiant Air doesn’t have.  Despite their higher fuel costs.

Fuel costs are an airlines greatest cost.  Especially for the long-haul routes.  Which burn a lot more fuel per flight than the typical Allegiant Air flight.  Which is why the fuel-efficient Boeing 787 is so attractive to them.  As they need to squeeze every dime out of their fuel costs as they can.  To offset their high union labor costs.  Those very costs that return a lot of airlines to bankruptcy.

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GM and Ford pursuing Carbon Fiber to Improve Fuel Efficiency and Increase Profits

Posted by PITHOCRATES - April 15th, 2012

Week in Review

Ford and GM following the lead of Airbus and Boeing.  Using composite materials to make their vehicles lighter.  And more fuel efficient.  For as Airbus and Boeing have proven, improved fuel efficiency during times of high fuel costs leads to more unit sales (see Ford, Dow to explore carbon fiber use in vehicles by Deepa Seetharaman posted 4/12/2012 on Reuters).

Ford Motor Co and Dow Chemical Co will work to develop cost-effective ways of using carbon fiber in high-volume cars and trucks as the No.2 U.S. automaker moves to cut vehicle weight to improve overall fuel economy…

Weight reduction is one way for automakers to boost the efficiency of their fleets in anticipation of rising oil prices and stricter fuel economy standards for upcoming model years…

Using carbon fiber in lieu of conventional steel can lower the weight of a vehicle component by up to 50 percent, according to the U.S. Department of Energy. Cutting a car’s weight by 10 percent can improve fuel economy by as much as 8 percent.

Carbon fiber, already used in racing cars and products like hockey sticks, is not new to the auto industry. BMW (BMWG.DE), for example, uses the material in its M3 coupe.

Yet carbon fiber’s high cost has blocked its wide-scale use. Industry experts say one way to lower the overall cost of carbon fiber is to find cheaper ways of preparing those materials…

Last month, the Obama administration announced it would provide $14.2 million in funding to spur development of stronger and lighter materials.

Really?  The government needs to fund this with subsidies?  You mean there is no incentive for automakers to make their cars lighter?  I think there is.  If they can make a car lighter without shrinking it down to something slightly larger than a shoe box they will improve fuel economy.  And increase sales.  For what family would not want to buy a fuel efficient car that lets them pack the family in it and take it on vacation?  Letting them take longer trips because the cost of gasoline doesn’t eat up the family vacation budget?  Or let families spend more on their grocery bill rather than on gasoline?  To enjoy more cookouts during their summer vacation?  One thing for certain is that if you can produce a more fuel efficient car that doesn’t trade anything else to get that efficiency (size, range, etc.), people will run to buy it.  And that is what we call incentive.

GM revenue in 2011 was $150.3 billion alone.  So Ford and GM are not doing this to get their hands on that piddling $14.2 million in federal money.  Which was about 0.01% of GM’s total revenue in 2011.  Which is little more than a rounding error.  They’re doing this to increase their market share in an increasingly competitive market.  In 2011 GM, Ford and Chrysler had global market shares of 8%, 8% and 3%, respectively.  If you divide GM’s revenue by 8 that comes to about $18.8 billion in revenue per percentage point.  Which is one heck of an incentive to increase unit sales to get just one more percentage point in market share.  And during times of high fuel costs one way to do that is to make a car cheaper to own by making it more fuel efficient.  That’s why they’re pouring money into carbon fiber technology.  Not because the government is offering what amounts to loose change under the sofa cushions as far as GM is concerned.  Because fuel efficiency equals higher market share when gasoline is expensive.  And market share equals higher revenue.  And profits.

Yes, it’s greed that’s making Ford and GM pursue carbon fiber to increase fuel efficiency.  Which is the best reason.  Because greed requires no government subsidies.

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