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View Full Version : Oil Prices Contracted Many Months Ago


glorya
03-02-2011, 06:02 PM
I have been told that the oil airlines are/will be using OIL that has been contracted for many, many months ago at a price different than what you and I pay for daily, SO they should not be using the Mideast "Crisis" oil scare/etc. as a reason to raise fares. Also along with this eye opener was a fact that the USA ships OIL to JAPAN from Alaska. OMG!!!! Any comments about these comments? :confused:

Ned
03-02-2011, 09:03 PM
Welcome to CT.

Oil is a world-wide commodity. The US oil companies have always exported oil over the years. It's never been a secret that Japan gets Alaska oil. It has to do with the shipping costs more than anything else.

As to the cruise lines and airlines, they have always purchased their fuel by contract. If they would have to purchase there fuel on the "spot" market they would have no idea of their costs from day to day and that would make setting their prices for seats and cabins close to impossible.

Sometimes those contractual prices are real winners for the cruise lines and airlines. Up until about 2 years ago, Southwest, which had entered into a long term deal for jet fuel produced huge profits on their fuel contract alone. Then the contract ran out, and the oil companies wouldn't write such a long term contract without any escalators again.

According to the timing of the fuel contracts, they can be winners or losers to the cruise lines and airlines. In a rising market they make out well, but in a falling market, which can happen and did for quite a while last year, they can lose too. Right now, with the unrest in the Middle East, and uncertainty in the market the airlines and cruise lines are saving money with their contracts. If stability can come back to the region, oil prices will again fall, and those contracts might not be so good.

The good thing for the airlines and cruise lines with the contracts is they provide cost certainty for them. That permits these transportation companies to be able manage themselves well, and that's actually good for everyone, as it helps to keep the industries healthy and helps keep prices lower. If they were operating with oil price uncertainty I assure you our costs for tickets would be much higher.

Loonbeam
03-02-2011, 09:15 PM
As far as airlines and cruiselines go its a bit different. Airlines are charging fuel surcharges for future flights in line with their contracts for that time (most contracts are 3-4 months out max). They are not selling you at one price and then you have to fork over more money at the counter. You can debate whether or not they should just be part of the fare, but its a reasonable process.

Cruise lines on the other hand play both sides of the fence, because they have it set up so they can charge you the surcharge onboard even if you have already paid in full. I find that to be way more problematic.

Welcome to CT.

Oil is a world-wide commodity. The US oil companies have always exported oil over the years. It's never been a secret that Japan gets Alaska oil. It has to do with the shipping costs more than anything else.

As to the cruise lines and airlines, they have always purchased their fuel by contract. If they would have to purchase there fuel on the "spot" market they would have no idea of their costs from day to day and that would make setting their prices for seats and cabins close to impossible.

Sometimes those contractual prices are real winners for the cruise lines and airlines. Up until about 2 years ago, Southwest, which had entered into a long term deal for jet fuel produced huge profits on their fuel contract alone. Then the contract ran out, and the oil companies wouldn't write such a long term contract without any escalators again.

According to the timing of the fuel contracts, they can be winners or losers to the cruise lines and airlines. In a rising market they make out well, but in a falling market, which can happen and did for quite a while last year, they can lose too. Right now, with the unrest in the Middle East, and uncertainty in the market the airlines and cruise lines are saving money with their contracts. If stability can come back to the region, oil prices will again fall, and those contracts might not be so good.

The good thing for the airlines and cruise lines with the contracts is they provide cost certainty for them. That permits these transportation companies to be able manage themselves well, and that's actually good for everyone, as it helps to keep the industries healthy and helps keep prices lower. If they were operating with oil price uncertainty I assure you our costs for tickets would be much higher.

Ned
03-02-2011, 09:32 PM
Personally L., I don't think the airlines pricing of their seats is remotely reasonable from a consumer point of view, but it makes perfect sense from the airlines' point of view. As to the cruise lines, I don't think they are reasonable either, but they do let you know they might charge you a surcharge even after you've paid the base fare in full. The cruise lines I've been on, if they charge "after the fact" surcharges, do tell you the upper limit it could be in advance, so you do know that.

As far as airlines and cruiselines go its a bit different. Airlines are charging fuel surcharges for future flights in line with their contracts for that time (most contracts are 3-4 months out max). They are not selling you at one price and then you have to fork over more money at the counter. You can debate whether or not they should just be part of the fare, but its a reasonable process.

Cruise lines on the other hand play both sides of the fence, because they have it set up so they can charge you the surcharge onboard even if you have already paid in full. I find that to be way more problematic.

Loonbeam
03-03-2011, 09:11 AM
Oh overall air pricing is a godawful mess (and as I have said before its the penny hunting public's fault in part as well). But at least with the surcharges for the most part they are charging them in line with what they expect their costs to be at the time based on contracts they have in place now (most of the airlines should be contracted for the majority of their fuel through the end of the year or close).

The problem I have with the cruise lines is that their charges can be levied based on the market price of the fuel on the day you cruise, but you have no idea what they are actually paying...

Personally L., I don't think the airlines pricing of their seats is remotely reasonable from a consumer point of view, but it makes perfect sense from the airlines' point of view. As to the cruise lines, I don't think they are reasonable either, but they do let you know they might charge you a surcharge even after you've paid the base fare in full. The cruise lines I've been on, if they charge "after the fact" surcharges, do tell you the upper limit it could be in advance, so you do know that.

cooldad
03-03-2011, 01:58 PM
Cruise lines typically have wording to the effect when oil reaches $X we reserve the right ti implement a surcharge of upt to $10 per passenger per day (RCCL) not to exceed $140 per voyage.

But it is tied to the price of oil on the markets. Now RCCL has not implemeneted the fee to my knowedge jsut yet

deangreenhoe
03-03-2011, 02:30 PM
But it is tied to the price of oil on the markets. Now RCCL has not implemeneted the fee to my knowedge jsut yet

Just had people on Holland America squeak onto a ship without paying the surcharge (same deal as with RCCL) even though the market price of oil had exceeded their quoted threshold just prior to the sailing date. In the past, I've had passengers not be so fortunate.

Even when the policy is disclosed and discussed in advance, most folks still like to make a lot of noise when it's applied to them. :rolleyes:

Loonbeam
03-03-2011, 05:42 PM
Which is fine, unless RC has contracted for $X-20... Admittedlly, the lines haven't implemented yet, so either for competitive or altruistic (hah!) reasons they are eating the margin.

As soon as one line does, the others will follow shortly.

Cruise lines typically have wording to the effect when oil reaches $X we reserve the right ti implement a surcharge of upt to $10 per passenger per day (RCCL) not to exceed $140 per voyage.

But it is tied to the price of oil on the markets. Now RCCL has not implemeneted the fee to my knowedge jsut yet

cooldad
03-04-2011, 07:22 AM
Several lines have already implemented it. Cunard, Holland America. Others have not yet. And perhaps in a related move, NCL released a 10% price increase effective April 1. Is NCL building the cost of providing the service into their price--now there is a novel idea.