Monday, March 12, 2012

For Airlines, Costs Counted in Pennies Add Up

A penny difference in cost can add up--in quantity for the world's airlines. Consider Delta Airlines's purchases of pretzels and peanuts. Every year, the airline gives away 61 million bags of peanuts and another 61 million bags of pretzels. So when Delta has to pay 1 penny more for a bag of peanuts, its costs rise by $610,000. Add another penny to what it pays for pretzels, and the airline's costs go up by another $610,000. Delta was able to save $210,000 by taking away one strawberry from salads served to passengers in first class on domestic routes. One strawberry!

Now think about the cost of jet fuel, which has tripled during the past decade. Fuel accounts for 35 percent of an airline's operating costs. Airlines can manage many costs in various ways, but an increase is an increase, and jet fuel's price spike has been measured in nickels, dimes, and quarters rather than pennies. Delta says that every penny increase in the cost of a gallon of jet fuel raises its yearly costs by another $40,000,000.

No wonder Delta and other airlines have added fuel surcharges to the fares they set for long-haul destinations such as Asia and Europe. Even if fuel prices ease off, the airlines may be slow to ease off the surcharges. Every penny counts when the numbers get this big.

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