Airlines Lose Their Jet Fuel Credit Lines

Another nail in the (legacy) airline industry’s coffin:

A credit controller at a leading European multinational oil company told The Times that the oil industry was moving to jet fuel prepayment. “It’s common in the US and it is moving to Europe. We have been moving to prepayment since Swissair went bust.”

The need to put up money before delivery of fuel is a huge financial burden that has been shifted from the oil companies to the airlines. According to John Armbrust, a US jet fuel consultant, the oil industry had $5 billion (ߣ2.5 billion) of jet fuel credit outstanding to airlines before the 9/11 terrorist attacks. Now they are demanding that airlines leave cash on deposit.

This is much bigger than the holdback issue. When I was writing about holdbacks, I said that they were "one of the three most important relationships that an airline has: the other two are with a global distribution system, for ticketing, and with a jet fuel supplier." Of the three, the jet fuel relationship is clearly the most important, from a cashflow perspective – and now US airlines are having to pay for their jet fuel in advance, rather than only having to pay for it 14 or 21 days in arrears.

There’s nothing here that can be solved by meddling ineffectually with charging for checked baggage. This is a big, central, and pretty much intractable problem – one which won’t be resolved in the foreseeable future unless and until jet fuel prices fall dramatically. And I’m not holding my breath for that to happen.

(Via SAR)

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