The dilemma of fuel prices

With the price of aviation fuels dropping, Jet-A to under $2.00 per gallon and 100LL nearly that low, I find myself contemplating how operators will address fuel surcharges. I was always a proponent for charging a fuel surcharge when fuel prices were volatile, usually in the increase mode - I still believe that to be true. At the time, the bulk fuel price was considerably more than it is today.

Undoubtedly at today’s fuel prices, it would be very difficult to explain adding a fuel surcharge to any invoice, whether it be for the UPS or FedEx delivery or an ag-plane’s application. What does an operator do? Reduce his base per acre or hourly rate charge? I don’t expect to see anyone’s base prices coming down because of a savings on fuel, regardless whether the charge is aviation related or not. I believe most consumers, including the farmer, believe the same thing.

Lower fuel costs are an opportunity to catch up on pent-up demand for new equipment or pay down a haunting bank note. At least buying the new equipment would come in part before the fuel savings is taxed. However, paying extra on the principal of a bank note, to my knowledge, would have to be with after-tax dollars; something to think about.

I overheard at a state convention one operator say he anticipates saving over $400,000 in 2015 if he burns the same amount of fuel as in 2014 and  the price stays $2 a gallon less than he paid last year. By his calculation, it would appear the operator purchased about 200,000 gallons of Jet-A. Depending on the aircraft, you could say that was four ag-planes logging about 1,000 hours each. Or, it could be eight ag-planes logging 500 hours each; assuming 50 GPH average fuel burn. Any way you make the calculation, a $400,000 windfall is huge, even for this large operator.

If that operator had been charging a fuel surcharge and does not in 2015, then he shouldn’t expect to profit $400,000. I guess that would be a plausible argument to not charge a fuel surcharge. But, only if you don’t count how much money that was lost in previous years by not charging a fuel surcharge.

The point in all this is a flying service should not be figuring on fuel prices to make a profit, whether it be an inflated fuel surcharge or a significant overall drop in fuel costs. Ag operators are not fuel brokers. Pricing should be based on multiple factors that allow for increases in fuel costs, as well as a savings to the customer by reduced fuel costs. The calculation will never fit perfectly. In most cases, over time, there will be gains and losses because of fuel prices regardless of how invoices are written.

That’s my two-cents worth; much like a saying, “The advice you get here is worth what you paid for it”. Nothing! In the meantime, I am immensely enjoying filling up my truck with gas for under $40.

Until next month, Keep Turning…