How to use today’s low fuel costs to power your competitive advantage

falling fuel prices and small business success

Managing fuel costs may not be quite the high-stakes proposition in your small business that it is in the airline industry, but you can learn a few things from how various air carriers have dealt with rising – and falling – fuel costs.

Right now, Americans are enjoying very low fuel costs. However, we all know that we were suffering through record high costs not long ago. There are three critical things to do under these conditions:

  • Make your best guess as to which direction fuel will go next,
  • Capture savings when costs go down, and
  • Find ways to reduce costs when the price goes up.

Let’s see how these price swings have hit air carriers. For example, when prices were going up, Southwest enjoyed a competitive advantage because it had bought future contracts that locked in lower prices. As long as prices kept increasing, “buying ahead” at the current price, worked well.

Wisely, however, Southwest didn’t secure 100 percent of future fuel requirements this way. But American Airlines wasn’t hedging fuel prices at all, so when the market essentially collapsed in recent months, it was in the ideal position to cash in on the lower prices.

It reminds me of the famous Clint Eastwood quote in “Dirty Harry”:

“You’ve gotta ask yourself one question: ‘Do I feel lucky?’ Well, do ya, punk?”

American Airlines is lucky right now, but most small business owners – if they feel their luck might run out – can’t hedge their fuel prices like the major airlines. They still need to have a sense of which direction they believe prices will go in the short, medium and long term, and plan accordingly.

In the short term, the answer is easy, and this is where you need to be focusing your efforts right now. Fuel costs will be low, and they’ll probably stay that way for many months if not a year or two. Iranian oil will hit the market very soon, bankruptcies within the U.S. oil shale industry will ratchet down their costs, and economic growth in China isn’t what it was when demand for oil was driving up the price.

To answer Dirty Harry’s question today, you should be feeling lucky. But if you aren’t consciously taking advantage of these lower prices, you’re wasting an opportunity that doesn’t come along very often and sooner or later you’ll be out of luck.

Almost every small business is enjoying some kind of savings due to lower fuel prices. Don’t let that extra cash dissipate into the ether. Capture it. Where will this extra cash deliver the greatest benefit to your small business? Do you need to upgrade some equipment? Would it be wise to pay off some debt? If fuel costs figure heavily into your pricing structure, maybe you can cut your prices and snag some new customers or clients. You might even take the money you’re saving on fuel today and invest it in ways that will make you better prepared for the day when prices go up again – new, efficient HVAC; more fuel efficient vehicles; fleet monitoring hardware and software, etc.

Only you can answer these questions. However, if you don’t sit down and calculate how much money you are saving due to lower fuel costs, it’s unlikely that you’ll make a strategic decision on how to best invest the windfall.