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Reduced oil price could lead to increased MRO demand - IBA

Posted 26 February 2015 · Add Comment

With the reducing cost of oil resulting in even lower aviation fuel prices, the overall airline direct operating cost breakdown is changing.

 “Aircraft maintenance costs are less volatile than the price of fuel and they are a factor that is within the control of airlines” comments Phil Seymour, president and chief operating officer at the International Bureau of Aviation (IBA, pictured right. “Reviewing maintenance costs should be seen as an essential annual event for all airline CFOs and CTOs.” 

Maintenance costs represent 15-25% of an airline’s direct operating costs (DOC), depending on the specific aircraft fleet age, utilisation and operational influences. Seymour said. “Using 2010 data when oil was around US$80-90 per barrel compared to today’s price at circa US$50 per barrel, the DOC split has seriously shifted. In 2010 fuel represented around 25% of the DOC and maintenance was just 12-13%. But now that the cost of fuel is almost cut in half, maintenance costs are becoming a higher contributor to DOC than fuel, accounting for around 15% at best and as high as 25% for older fleets. 

“The lower fuel price may well prove to influence increased maintenance demand if airlines now consider using their older, less fuel efficient aircraft for longer. In theory, the reduced fuel price should trickle though to generate lower labour and material costs, but much will depend upon how escalation/inflation clauses are stated in the MRO agreements” he said.
 

 

RIGHT: Phil Seymour, president and chief operating officer at the International Bureau of Aviation (IBA)

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