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The National Academies

ACRP 03-15 [Completed]

Impact of Jet Fuel Price Uncertainty on Airport Planning and Development

  Project Data
Funds: $400,000
Research Agency: GRA Incorporated
Principal Investigator: Frank Berardino
Effective Date: 3/4/2009
Completion Date: 3/31/2011

In the summer of 2008, jet fuel prices were up more than 200% over those experienced in 2000. During this same period, jet fuel costs increased from 15% to 40% of total domestic airline operating costs.  These increases are causing airlines to raise fares, cut schedules, and drop scheduled service to some communities.  Domestic flight schedules for October 2008 (Official Airline Guide) show many airports are likely to see declines in air service of 8-10% with many airports in the 10-20% range and higher.  Further service reductions are possible, especially if jet fuel prices are sustained at levels prevailing in the late spring and early summer of 2008.  Higher jet fuel prices leading to higher fares could discourage non-business travel and limit the growth of some business travel.  

What exacerbates the problem is that jet fuel prices can change rapidly and in ways that are difficult if not impossible to forecast.  The current level of uncertainty about future jet fuel prices poses significant challenges to airlines and airports.  If airlines and airports were better able to predict the effect of jet fuel price changes on airline service and airport development and finance, they could strategize better (both individually and, where appropriate, collaboratively) how to plan for and accommodate such change.

The objective of this research is to produce a computer model that can be used by airport operators and planners to examine the impact of jet fuel price on supply and demand for air service at commercial service airports, and the resulting impact on airport development and finance.  This model should be constructed using a software platform generally available at nominal cost, using specified airport parameters drawn from a broad list of relevant categories including, but not limited to, the following:

  • O&D market size,
  • Airport role as an O&D airport or as a connecting hub,
  • The nature of economic activity in the surrounding community,
  • The link between airport activity and regional economic growth and development,
  • Changing passenger demographics,
  • Leisure versus business travel demand,
  • Geographic characteristics and proximity to competing airports,
  • Freight and cargo activity, and
  • Differential levels of service to domestic and international markets. 

The model should be predicated on sustained jet fuel prices ranging from $1.00 to $5.00 per gallon but set up to facilitate analysis at a higher rate, if that rate should be realized.  The price of jet fuel in the model should be treated as a discrete variable that can be established by the user.  (These prices represent base prices and exclude margins, transportation costs, storage costs, and taxes.)

Status: The results of this study have been released as ACRP Report 48 and both the report and the model are available through the following link:

http://www.trb.org/Main/Blurbs/165241.aspx

When accessing the model, please make sure that macros are enabled in Microsoft Excel as this is necessary for the model to run.

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