Expensive Jet Fuel
Q: Jet fuel is essentially kerosene and sells for about $1.60 gallon at present. But why does it cost more than three times that amount down at the local hardware store? Are the airlines are buying in bulk?
Jet fuel is slightly different from campground-grade kerosene, and obviously there’s an established infrastructure for its production and delivery. And yes, the airlines do buy in bulk. Lots of bulk, often hedging their purchases by buying millions of gallons, months or even years ahead of time. Of course, a carrier needs cash on hand to do this, which is partly why Southwest — who else? — is the industry leader. With oil prices creeping toward $60 a barrel, the airline was able to hedge more than 80 percent of its anticipated fuel needs for 2005 at a ridiculous $25 a barrel. For 2006 it has already bought ahead at $31 per barrel, and at $30 for 2007.
This Q&A is part of a collection that originally appeared on Salon.com. Patrick Smith, 38, is an erstwhile airline pilot, retired punk rocker and air travel columnist. His book, Ask the Pilot (Riverhead) was voted “Best Travel Book of 2004” by Amazon.com. Patrick has traveled to more than 55 countries and always asks for a window seat. He lives near Boston.