Does the Cost of Avgas Really Matter?
Itís an article of faith that one reason flying activity is in the crapper is because avgas costs, on average, about $6 a gallon. Maybe thatís true, maybe it isnít, but like many of us in the aviation business, I suspect the high price of fuel is just one reason for declining flight activity and it may not be the dominant reason.
As we reported last week, Redbird aims to put some data on the theory with its novel experiment to sell fuel for a buck a gallon throughout the month of October. The logic here is that if flying activity doesnít increase by a certain amount, that will prove that the price of fuel isnít the major driver some of us think. The obvious weakness in this reasoning is lack of a baseline at certain price points so we have no idea if demand for avgas is elastic or inelastic. Where does the curve shallow or get steep? Is it $2 or $4.50? Thereís simply no data to inform a guess, thus Redbirdís survey questions will need to be cannily contrived to make any sense of this. In the end, it may not be possible to make any sense of it.
From our own recent fuel survey, we may have confirmed the beliefs of those who say fuel price isnít the driver we think it is. One of the questions on that surveyówhich weíll be reporting on shortlyóasked about mogas versus avgas. While there is widespread interest and support for mogas, not many owners are actually using it. The survey asked why. Only 5 percent of the respondents cited a lack of enough price difference between mogas and avgas as a factor in not using it.† No surprise that nearly a quarter said they donít use it because itís not available on the airport. Iím willing to bet Redbirdís experiment will reveal a parallel finding. Fuel price has an effect, but not to the extent we believe.
On the other hand, even if the Redbird project reveals that fuel price is a bigger factor than we thought, what to do about it? Jet A is a solution, but a slow developing one, given the size of the legacy fleet. Mogas is promising, but remains steadfastly unable to gain traction, despite strong interest in it. (More on that later.)
The fuel survey revealed another thing: Many pilots donít see why an unleaded replacement for avgas has to be more expensive. Why shouldnít we expect it to be cheaper? Because there are no visible market forces to make it so. Thereís no reason to believe the unleaded replacement will be cheaper to manufacture given how cheap lead is as an octane enhancer. Furthermore, the price you pay for avgas doesnít have much to do with the cost of producing it anyway. Bluntly, refiners put a fat margin on avgas because the market will bear it and competition, hobbled by limited suppliers and transportation challenges, hasnít worked to flatten out the price spikes.
Leaded avgas is really more of a specialty chemical than a fuel and that may prove more true of its unleaded replacement. It will likely sell in a market where Jet A will continue to erode the usefulness of aviation gasoline. No part of that equation points to lower prices. But we can all hope the unleaded replacement will bring more players into the market. Thatís not impossible, but I donít see it as likely.
Meanwhile, Iíll be watching Redbirdís loss leader experiment with interest. It may very well be the FBO equivalent of the Charge of the Light Brigade, but it†ought to make for some compelling news coverage. We can all use a little more of that.