Fuel saving target
United’s (UAL) goal is to achieve annual cost savings of $2 billion by 2017. Out of this, $1 billion, or 50% of the cost reduction target, is expected to come from fuel cost savings. Following this plan, United achieved significant fuel cost savings during 3Q14 in the form of lower purchase costs and improved fuel efficiency.
Lower fuel price per gallon
In 3Q14, lower crude oil prices supported United in achieving a 3.5% decrease in fuel purchase costs. Overall fuel expenses decreased by 4% to $3,127 million, and the per unit fuel cost, after adjusting for hedging gains or losses, decreased by 3.2% to $3.02 per gallon from $3.12 in 3Q13. In the previous article, we saw that United achieved the highest cost reduction in 3Q14 among its peers, which was supported by its lower fuel costs.
Although most of the top airlines managed to reduce their fuel costs, United’s (UAL) average price per gallon reduction of 3.2% was the highest. United’s peers include Delta (DAL), American (AAL), Alaska (ALK), JetBlue (JBLU), and Southwest (LUV), with fuel price reductions ranging from 2% to 2.9%. However, United’s fuel price per gallon in 3Q14 was still higher than all its peers except Alaska and JetBlue.
Improved fuel efficiency
United’s fuel consumption per 1,000 available seat miles (or ASM) also improved to 15.86 gallons in 3Q14 from 16.08 gallons in 3Q13. The company’s target is to reduce it to 14.9 gallons by 2017. For more details on this initiative, refer to United Continental’s must-know targets for future efficiency gains.