It comes from a report by the International Council on Clean Transport entitled “U.S. domestic airline fuel efficiency ranking, 2010” that was published earlier this month. (It is also discussed in the Washington Post.) Here is the question that it is attempting to answer: Given that different airlines do different things, how can we fairly compare their ability to use fuel efficiently? What’s cool about the answer is that you see with in the answer firms’ strategic and operating choices.
Before getting to the operational implications, let’s acknowledge that there are a couple of facts or assumptions that underlie the rationale of that question. For example, it is a fact that planes burn lots of fuel on take off. Hence, if an airline’s bread and butter is providing frequent relatively short flights between the midwest and east coast, it is going to use a lot of fuel. However, if you believe that a choice of departure times creates consumer surplus and that good air service is important to the economy of a mid-sized city (I’m looking at you, Cincinnati), you don’t want an analysis that penalizes frequent departures. Now that last statement obviously is a little more opinion-based than a statement about accelerating a fully loaded jet but it is really a question of how much weight you want to put on different factors.
So in answering that question, the researchers at ICCT deem that Alaska Airlines is the most efficient airline while American and Allegiant are the worst. Allegiant used 26% more fuel than Alaska would be forecasted to use if Alaska provided the same level of outputs as Allegiant.
They reached that conclusion that by forecasting how much fuel an airline used as a function of its outputs — how many “revenue passenger miles” (RPMs) it provided as well as the number of departures it offered. (Logarithms were involved, in case you really care.) The latter favors firms providing frequent service to lots of places while the former favors firms moving lots of people long distances. The ICCT folks do something clever with the RPMs. As they note in the report, a passenger going from NY to LA via Houston logs a lot more miles than one going a direct flight and you don’t want to the analysis to reward such spurious mileage. Hence, they adjust reported RPMs by great circle routes to penalize circuitous paths across the country. Efficient firms are those that use less fuel than the model forecasts. Inefficient firms do the reverse.
OK, that’s all fun. But how do we see a firm’s strategy in the answer? Look at Alaska. Here is their route map.
They have a mix of shortish north-south routes between Seattle and major west coast cities that presumably happen with some frequency mixed with some long-haul, high volume routes. That is just the kind of firm that will do well in this analysis but it also reflects a strategy that is content to be a substantial regional player. Alaska runs a hub from Seattle but does not impose a lot of circuitous routes on customers since most of the travel is north and south. Spirit’s routes are a little more scattered but they benefit from stacking passengers like cord wood.
Why does Allegiant look so bad? Here is a map of where they fly.
Their website notes that some of these cities are served on a seasonal basis and “All Allegiant flights are nonstop – Allegiant does not offer one-stop or connecting flights.” So they are going to be penalized for not offering lots of departures. But that doesn’t explain everything. Allegiant specializes in flying old, used aircraft — think lots of MD-80s. They have chosen to use a less fuel-efficient fleet. That highlights that there are multiple components to being a low-cost provider in this industry. One can have a super efficient fleet so variable costs are low. But capital costs also matter. So there is something to be said for aiming for a super cheap fleet to minimize your financing obligations. Note that one can make a similar observation about the conventional hub-and-spoke carriers on this list. One of the reasons American looks bad is that it has relatively old planes as it was unable to completely overhaul its fleet before bankruptcy.
A final question why do conventional airlines like Delta and United looks so different in this analysis? They all fly hub and spoke. They all interface with regional carriers. They all buy the same planes.
For that the report points to “operational practices” under which it throws “fuel loading/tankering, single-engine taxi, etc.” The fuel loading question is particularly interesting. If you were interested in minimizing the amount of fuel burned in getting from A to B, you would choose just enough fuel to get you safely from A to B. That minimizes the needless schlepping of dead weight. However, if American has a plane going to and from Dallas all day, it will likely be able to get better fuel prices if it concentrates all of its purchases in Dallas. That is, there is a possible tradeoff between fuel efficiency and fuel expenditures.
Given this is airline industry, there is an additional wild card: The pilots. I’ve been reading Mark Gerchick’s book on the airline industry, Full Upright and Locked Position. He makes the point that the pilots are in charge of the flight and can over rule corporate policies on fuel purchases. That is, if your pilots union is a little peeved, they can take corporate fueling requirements as mere guidelines. The pilots can choose to fly a heavy plane in the name of safety even if it costs the company some extra cash.