Burning Jet Fuel

Next Gen Jet Engines cera 1989

$14/Gallon and Walmart is just fine!

In his new book $20 a Gallon Christopher Steiner pegged $14/gallon as the dead of Wal-Mart.  So is this claim true?  To find out we need to figure out two items:  The impact of the price of fuel (Diesel for Walmart’s trucks and Gasoline for consumers) and put it in context of the sales of goods at Walmart.

How much fuel does Walmart Use?

Walmart owns the largest private truck fleet in the world to transport goods to their stores.  Unfortunately Walmart does not directly publish  the fuel usage statistics, but thankfully their 2009 Sustainability Report provides enough numbers to figure out the details for the US fleet.

[For 2008] driving 7 percent, or about 90 million, fewer miles in absolute terms…By driving fewer miles, we avoided adding 200,000 metric tons of CO2 into the atmosphere.

Thanks to figuring 22.2 lbs CO2/gal of diesel and some algebra we can figure the fuel use for Walmart in 2008:

At first glance, using 285 million gallons of fuel at $14 per gallon will devastate Walmart.  But let’s put that in context:  Walmart’s US sales for FY2009 is $255.7 Billion Dollars (2009 Annual Report).  So at $14 a gallon, Walmart’s fuel cost would constitute 1.5% of total sales, meaning that it would be a literal blip on the radar.

How much do consumers burn to get to Walmart?

This question is a lot more complex.

• A study by Thomas J. Holmes for the Federal Reserve Bank of Minneapolis noted that that median distance to a Walmart in the US is 4.2 miles.
• The Bureau of Transportation Statistics noted the average fuel efficiency of a car in 2006 is 22.4 MPG
• Walmart in a Press Release noted that 138 million people visit Walmart every week.

Unfortunately, there is no data that I could find that shows how many people visit Walmart per car trip to Walmart, but for the sake of this analysis, let’s assume that on average 2 people visit Walmart per car trip.

So with 138 million people visiting Walmart, that means 3.5 billion car trips are taken annually to Walmart.  Considering the annual sales of $255.7 Billion, that means the average car trip to Walmart involves spending $71.27.

So with fuel at $14/Gallon, the cost of a round trip to Walmart will constitute 7% of the total amount spent during a visit.

The Bottom Line

At $14 a Gallon, Walmart will spend $4 Billion supplying their stores and consumers will spend $18 Billion to shop at Walmart for a total of $22 Billion.  That means that the cost of shopping at Walmart  will increase by 9%.  Now given, this does not take into account the impact of higher oil prices on the cost of producing the products and supplier shipping including transpacific shipping-which might mean more production moves domestically;  but this exercise shows that if fuel prices were to reach $14 a gallon, the impact on the average Walmart shopper will be painful but manageable.

Google Spreadsheet of Data

How Many MPG does an Airplane Get?

For FY2008, On a per available seat basis, the major airlines and Amtrak got the following fuel economy:

Of course that’s on a available seat basis, on a per revenue seat basis (MPG of seats with paying customers in them):

Google Spreadsheet Noting Raw Data

Southwest does seem to be the odd man out due to the lower passenger load factor.  Of course, this could well be balanced out due to the fact that Southwest follows a point to point approach where they trade lower passenger load factors for a trip with less miles flown.

The paradox of oil wealth

Amtrak Vs. Airlines: Air travel wins even at $1,000/Barrel

With additional spending for Amtrak gaining the political momentum equivalent of a speeding fright train, the question seems obvious:  Can Amtrak ever offer a more affordable transportation solution than commercial air travel?  In short, Amtrak will never beat air travel, even with jet fuel in excess of one thousand dollars a barrel.

Fortunately, all major airlines in the US are public companies and Amtrak makes their financial reports available via their website.  This makes a short order of comparing the two transportation methods.

One of the common metrics of transportation performance is Cost Per Available Seat Mile (CASM) which divides total costs by the total seat-miles traveled.  For 2008, the cost per seat mile:

(Source:  Annual Reports for 2008)

Whoa!  Amtrak manages to have costs over 300% higher than Low cost carriers JetBlue and Southwest.  With all of this comes the gambler’s dilemma–Will increasing the spending in Amtrak result in lower operating costs?

Impact of fuel costs

But what about the impact of higher fuel prices?  If Oil goes to $200 a barrel, Amtrak will be able to be competitive then, right?  No.

Taking into account the fuel used per ASM, air travel cost remain lower than Amtrak’s up to approximately $1,000 per barrel of jet fuel/diesel*.   In fact, at $1,500 a barrel for fuel, Amtrak’s cost per seat mile are still within a cent of JetBlue’s.

(*I just used $/Barrel of refined product, as I did’nt feel like messing with crack spread.)

Impact of fuel prices on CASM

Love Rail?  Fire Amtrak Employees!

The take away is simple.  I hold this simple challenger to those who favor high speed rail:  Show me that Amtrak can work first.  I’m not even interested in profits, just costs.  Show me a 50% reduction in costs before talking about high speed rail.  Otherwise, we will be committing billions of dollars of our money to an endeavor where no reasonable assurance can be gained that the end result will be economically viable beyond paper studies by proponents who will feel no recourse if their conclusions are proven wrong.  Amtrak is structurally deficient to the point where $20 a gallon fuel will still fail to change the fact that air travel has managed to beat their paints off.

If you support high speed rail, your first goal should be to to get KPMG to remove the following from the audit report on Amtrak:

“The Company has a history of substantial operating losses and is dependent upon substantial Federal government subsidies to sustain its operations…Without such subsidies,Amtrak will not be able to continue to operate in its current form and significant operating changes, restructuring or bankruptcy may occur…”

Google Spreadsheet Noting Raw Data