Video: Think your gas bill is high?

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CNBC
updated 7/10/2008 8:50:49 PM ET 2008-07-11T00:50:49

As he strides through Dallas-Fort Worth Airport, Scott Turner may not look like the weight of crushing oil prices rests squarely on his shoulders.

But Turner is the man American Airlines has tapped to make sure its fleet of 700 aircraft uses every drop of jet fuel as efficiently as possible. With a title of manager of flight operations efficiency, he’s painfully aware of the sight and even the sounds of fuel use.

“When you hear jet noise, that’s money being spent,” he says.

Turner runs a program called Fuel Smart. Its mission is nothing less than to transform the mind-set of the nation’s largest carrier.

As Turner watches 20,000 gallons of fuel being pumped into a jet, he says, “this is what we are trying to do as little of as we can.”

At the recent market price of roughly $3.85 a gallon, that means it costs about $77,000 to top off a Boeing 767.

In the first half of last year, jet fuel averaged about $80 per 42-gallon barrel. But in the same period this year, that barrel cost over $132 on average. That translates to an added cost of $20 billion for the nation’s airlines. U.S. airlines will probably shell out close to $61 billion for the precious liquid in 2008.

That helps explain why eight of those airlines — unable to keep up with the rising costs — have gone out of business since November.

Although American isn’t about to go under, it is hurting. The $6 billion it saved in a painful, post-9/11 reorganization has been swept away in a whirlwind of rising fuel prices. The airline guzzles more than 95 gallons every second, draining its coffers by more than $20,000 a minute.

A Boeing 767 burns about 9,000 gallons of jet fuel on a cross-country flight. That means American Airlines pays about $34,000 in fuel costs alone for that flight, up $15,000 in just the past year. The airline takes in about $54,000 in total revenue for the average flight from JFK to LAX. That leaves the company about $20,000 to pay for everything else, let alone make a profit.

The Fuel Smart program focuses on the evil twin enemies of fuel conservation: weight and time.

When it comes to weight, each pound shed from a plane saves the company 14,000 gallons of fuel a year. Magazines have been removed from the cabins, less water is carried on board, and American is testing using decals instead of paint for the exterior of the planes — a move that could trim each aircraft by 400 pounds.

The company is taking its weight-fighting campaign to the galleys as well, replacing 19,000 old food carts with new ones that weigh 17 pounds less. That saves the American 1.9 million gallons of jet fuel every year. At current prices, that’s almost $7.3 million in savings.

When American can’t remove more weight, it shoves the weight around. The load-planning department instructs baggage handlers and ramp personnel how to distribute bags and cargo so each aircraft — like a seesaw — has the most fuel-efficient center of gravity possible.

“If we can move the center of gravity back about 11 inches on an MD-80, we save about half a percent of fuel," said Penny Williamson, who oversees the department. "On an annual basis, the saving is about $10 million. That’s significant.”

An assortment of new technologies is saving even more fuel. American has added winglets — upturned, finlike extensions on the ends of its wings — to many of its jets, reducing drag. Adding winglets to its 737s and 757s will save American 25 million gallons of jet fuel each year.

For similar reasons, many MD-80s have had their conical tail cones replaced with ones that are shaped like the tips of screwdrivers.

“The new tail cones just make the aircraft go through the air smoother, which increases fuel efficiency,” Turner says. “We saved $5 million a year in fuel costs.”

Similarly, clean engine blades smooth the air flow. So American regularly power-washes its blades to remove dirt and debris.

Time is the other enemy of fuel conservation. But Fuel Smart doesn’t just examine flight time for fuel waste. Ground time can be a culprit too.

“We spend 5 percent of our total fuel expense on the ground," said Turner. "That’s $500 million a year just spent taxiing these airplanes around.”

If American can shave just 5 percent off the time aircraft spend on the runway with their engines running, it saves itself $100 million. Millions more are saved by instructing pilots not to carry too much fuel, which adds weight. Dispatchers prescribe precise fuel loads for flights, manipulating a Rubik’s Cube of factors including wind speeds, weather and arrival times.

Everyone at American has been told to keep the Fuel Smart principles in mind. Some veteran pilots have had to be convinced, said Turner. American makes sure its aircraft carry extra fuel in case flight time gets extended due to a course change or air traffic congestion. But Turner, an active American pilot himself, wants pilots to change the way they look at that extra fuel.

“In the past, we said, ‘I want 15,000 pounds when I get to my destination,'" he said. “Now we say, ‘Let's do that in minutes. How many minutes of fuel do you want when you get there?’ And typically, when you convert the minutes to gallons, pilots are willing to arrive with less. It's just this whole cultural shift that we've gone through.”

But, in the end, all of these efforts may not be enough. The 96 million gallons the program saved in 2007 reduced fuel cost by less than 4 percent. With more than 2,000 flights a day, the price of oil is sucking away any glimmer of a profit. As a result, airline executives are reconsidering their business model.

“It certainly takes a lot of your attention and makes you think, ‘How are we going to get through this?’" said Dan Garton, American’s executive vice president of marketing.

Garton believes the solution is easy to state but hard to bring about.

“We have to raise our revenues equal to what fuel has gone up,” he explains. “So in some fashion, whether it is prices or fees or customer mix, we have to increase our revenues in the neighborhood of $3 billion to $3.5 billion to offset the $3 billion to $3.5 billion of fuel cost increase. Plain and simple.”

American’s strategy is to drop flights and routes that aren’t profitable.

The theory is right out of Adam Smith: Cut the supply of seats, and demand for the remaining seats should rise, driving up overall revenues. American already has cut flights at several major airports like Chicago’s O’Hare and New York’s LaGuardia. It’s completely shutting down service to smaller cities like Albany, N.Y., Providence, R.I. and Harrisburg, Pa. By year’s end the airline will have cut capacity by up to 12 percent, similar to cuts by other major domestic carriers.

With fewer flights, fewer employees will be needed. Early this month, American announced that about 7,000 workers — roughly 8 percent of its more than 85,000 employees — will lose their jobs this year. And fewer aircraft will be needed too, meaning that 100 of the least fuel-efficient planes will be retired.

Garton admits that some current flyers simply will not be able to fly.

“It’s an unfortunate part of this because our country has gotten accustomed to being able to fly somewhere for the weekend," he said. "Everybody can go see Aunt Millie for her birthday, and some of that may change for some of our customers. Seventy-eight percent of our customers fly once a year. And so some of those people may not be able to fly anymore, because we will raise our prices by hook or by crook.”

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