Can you Afford a Private Jet? Forecasting Fuel Costs

As we considered previously, fuel accounts for nearly 50% of a business aircraft’s hourly operating cost. Yet, because the price of Jet A fuel can be highly volatile and is impacted by external factors such as geopolitical situations and supply and demand, the price per gallon can fluctuate dramatically.

Assuming you’ve already benchmarked various candidate aircraft that are capable of meeting at least 80% of your travel needs, refined the initial candidates into a shortlist, and have compared your preliminary shortlisted aircrafts’ metrics and operating costs, it’s time to go a little deeper.

Next you should focus on the two or three operating costs that encompass 70-80% of your entire operating budget when you break down your annual expenditure. The direct operating costs should include fuel, maintenance, engine overhaul and reserves.

While maintenance and engine overhaul could be made far more predictable through enrolment on an hourly aircraft maintenance program, fuel remains the outlier that needs to be closely managed.

Forecasting crude oil prices can be a daunting task as availability and demand in addition to other ‘external’ pressures make it hard to predict future price trends. Nevertheless, in the same way airline board discussions keep a firm focus on jet fuel prices and potential escalations, Business Aviation operators should implement various measures to help reduce the impact of Jet A prices should they spike suddenly.

Jet A fuel price fluctuations can substantially increase operating costs for Part 91 business aircraft operators, and especially those engaging in Part 135 charter operations directly impacting charter rates. Essentially, fuel prices can make or break a flight operation. Therefore, you need to account for them carefully.

Business Aviation Jet A Fuel is More Expensive

According to Market Insider Oil Commodity and SP Global Commodity Insight, on June 18, 2024 New York (Platts) oil (Brent) traded at US$81 per barrel (p./bbl.), representing a 0.06% price increase compared to one month prior.

Within the scheduled airline industry, this represents an average jet fuel price for scheduled airline services of $2.4/gal in North America (or a spread of 13% between oil (Brent) and Jet A fuel prices for scheduled airlines in the US). [Here, spread refers to the difference between two prices – rates and yields.]

Historically, global Jet A fuel prices for scheduled airline services p./bbl has averaged between 20% and 30% of oil Brent prices. However, when ‘external factors’ are present, such as geopolitical problems or supply and demand issues, the spread has increased to between 50% and 60% (high case scenario).

Now let’s consider what happens with Jet A fuel prices for Business Aviation operations, since the picture is quite different.

According to airnav.com, as of June 18, 2024, Jet A fuel prices within a 30-mile radius of – and including – Miami-Opa-Locka Executive Airport (KOPF) averaged $6.4/gal fluctuating from a low price of $4.99/gal to a high of $9.81/gal at airports/FBOs in the radius.

By comparison, Jet A fuel prices within a 25-mile radius of Teterboro Airport (KTEB) averaged $8.22/gal with prices ranging from a low of $5.90/gal to a high of $9.99/gal for FBOs in the area.

Using this data and benchmarking exercise to compare commercial airline service Jet A fuel prices, it becomes immediately evident that the cost of fuel for Business Aviation is three times greater than that of airline Jet A fuel. In fact, the average price for Business Aviation Jet A fuel was $7.97/gal at the time of writing.

Recommended Method for Forecasting Fuel Price Fluctuations

The first rule for Business Aviation operators who are trying to understand Jet A fuel price fluctuations is to look at the scheduled airline fuel prices during volatile and non-volatile periods. Then assume spreads of 20% to 30% in non-volatile times, and a 60% spread during times of volatility.

Next, divide by 42 (the assumed number of gallons in a barrel of Brent oil) to arrive at your forecasted Business Aviation fuel price (per gallon).

As an illustration, let’s assume a scheduled airline based at La Guardia airport is forecasting a Jet A price of $3.0/gal in its quarterly guidance report. This translates to an oil (Brent) cost of $100 p./bbl. Assuming no unexpected fuel price volatility occurs in the meantime, a business aircraft operator based at Teterboro Airport (KTEB) can expect an average Jet A fuel price of $9.0/gal in Q3 2024.

But don’t just base your forecast on a single calculation. Check and cross-reference it against various other data providers within the industry, including Argus International which executes quarterly research for both Business Aviation and scheduled airline Jet A fuel prices.

In the case of Business Aviation, this includes a survey of more than 200 FBOs, comparing multiple years of fuel price data (historic), and provides a good intelligence tool to review when it comes to fuel price escalation globally and in the US.

In Summary

Since fuel is the largest single cost for Business Aviation operators, it is essential when you’re looking to buy an aircraft to compare each aircraft on your shortlist carefully. What is the hourly fuel consumption for each airplane? What are the costs of any upgrades or modifications that could be made to bring the consumption level down?

And, most importantly, how would the fuel cost in each be impacted in the event of a fuel spike if you were flying the jet 200, 300 or 400 hours per year? If, for example, Aircraft A on your shortlist burns 15 gallons more fuel per hour than Aircraft B, then at $9 per hour over the course of a 400-hour flying year fuel would cost $54k extra annually to operate Aircraft A.

In the next article, we will discuss various strategies to negotiate and manage Jet A fuel prices. Stay tuned!

Read other articles from this series by René Armas Maes from this series.