Sharp decline in gas prices boosting budgets large and small

When Orkun Ayrac first started working downtown delivery routes for HomeSlyce Pizza Bar about a year and a half ago, he was filling his gas tank three times a week at nearly $60 a pop.

Today he fills up for less than $40 as he crisscrosses Baltimore's streets with pizza and chicken wings, saving about $240 a month. That's "big money" for the 26-year-old Istanbul native and Severna Park resident, who said he's using it to help pay for computer science courses at Anne Arundel Community College.


"When the gas prices get low, it helps a lot," Ayrac said as he cruised past the Inner Harbor on a recent delivery.

Commuters and companies across Maryland are enjoying a trend that has seen the average gas price drop from $3.36 per gallon to $2.09 in the past year, according to AAA Mid-Atlantic. Before that, the average price was even higher, nearing $3.70 in the peak summer months of 2013.


The steep decline, driven in part by increased U.S. production of crude oil, has brought savings to anyone who buys gas regularly. For Ayrac, that could mean more than $2,500 over the course of a year. For Baltimore County schools, the savings are an estimated $1 million. And for Southwest Airlines, the dominant carrier at BWI Thurgood Marshall Airport, the windfall approaches $2 billion.

Until last week, the national average price of gas had fallen for 123 straight days, said Ragina Cooper-Averella, a AAA spokeswoman. "We always see gas prices trickle down somewhat in the fall and winter months, but the levels that we saw in the last 123 days surprised everyone. To see the gas prices come down like this, it's encouraging, and it certainly bodes well for motorists. It gives them some discretionary income that they're not used to having."

According to energy analysts at Goldman Sachs, in fact, recent consumer gas savings have equated to a "tax cut" of between $125 billion and $150 billion. And those savings go well beyond individual consumers.

The Maryland Transit Administration, for instance, which operates the state's public bus and transit systems, saved 10 percent on fuel costs between July and December, compared to the previous year, the agency said. The State Highway Administration saved 12 percent on fuel costs during the same period. Both said the savings will be redirected into system maintenance.

The Maryland Port Administration, which operates crane terminals that serve ships at the port of Baltimore, said its fuel costs are 15 percent below what was budgeted for this year. And the Baltimore County school system, which operates a fleet of buses that travel more than 70,000 miles a day, has incorporated $1 million in expected fuel savings into its updated budget for fiscal 2016, a spokesman said.

Still, for all of the savings already realized, there is reason to remain cautious, said Kerry Tan, an assistant professor of economics at Loyola University Maryland. The price of fuel remains volatile as the international market adapts to the new U.S. supply, making fuel-based budget decisions for the future difficult, both for big companies and individuals.

"I'm kind of taking the 'wait and see' approach as to whether $2 is the new normal, and whether I can consistently expect the prices to be hovering around $2," Tan said, suggesting others should do the same. "If it does for a while, then perhaps I can look at my budget again and see if the savings I'm getting from not having to pay as much for gas can perhaps go toward other luxuries, like going out to eat."

Cooper-Averella also noted that the national average price of gas increased by a penny, to $2.05, last week. That's due in part to refinery issues in the Midwest but could also be a sign that the market is bottoming out, she said.

AAA expects the average price to increase later this year, in line with regular seasonal adjustments, but to stop short of the $3 mark, Cooper-Averella said.

Part of those consumer savings are likely already going toward SUV payments, according to Eric Lyman, vice president of industry insights at TrueCar, which analyzes auto trends.

In 2014, SUV sales were up 12 percent compared to the previous year, while car sales were only up 1 percent, he said. A strengthening economy and bad weather in the first half of the year (think polar vortex) might have sparked the trend. But the drop in gas prices definitely helped to maintain it.

"Once the momentum was kind of behind the utility segment, and gas prices dropped, things just accelerated," Lyman said.


Some industries, despite being transportation-focused, have benefited less significantly from the decline in fuel costs.

D.M. Bowman Inc., a van and trucking company headquartered in Washington County, operates about 350 trucks out of seven locations, serving the port of Baltimore and about a million square feet of warehouse space. Bowman buys fuel in bulk for its own terminals, which provide about 60 percent of the fuel its trucks use; drivers purchase the rest on the road, said Jim Ward, the company's president and CEO.

Savings during times of low fuel costs are limited by the agreements under which Bowman runs cargo for shippers, Ward said. Shippers pay a surcharge that moves on a sliding scale, based on the cost of fuel. As the price of fuel drops, so does the surcharge.

Even as fuel prices drop, Bowman seeks to maintain efficiencies, Ward said. "We're still doing all the things we were doing when fuel was at its all-time high to try to manage and minimize the use of fuel. We're still as attuned to the cost of fuel, our miles per gallon, where we're buying it and how we're using it, as we were a year ago."

The impact on airlines depends partly on decisions they've made to lock in prices on future fuel needs, a process known as hedging.

Southwest Airlines, for example, has in the last year adjusted its own hedging to reflect the crash in the global crude market — and ease the burden of its locked-in purchases of jet fuel at higher rates.

In a conference call last week, Southwest leaders said they had counter-hedged to reduce the impact of those fixed-in prices in the first quarter of 2015. They also said that, despite their hedging losses, the dip in fuel costs has left them with huge savings.

Tammy Romo, Southwest's chief financial officer, estimated that the company would pay $1.95 to $2.05 per gallon for jet fuel in 2015, for a "very substantial" year-over-year savings of $1.7 billion.

The company, which controls more than 70 percent of the market at BWI, would not comment on how fuel savings might affect fares for fliers.

"We don't comment on future pricing, except to say that you can continue to expect low fares and no hidden fees from Southwest Airlines," the company said in a statement.

Back in Baltimore, local business owners, managers and independent drivers realize fuel prices could go back up — they've seen it happen before — but are enjoying the lower costs while they last.


Carey Jenny, manager of Crimson & Clover Floral Design in Roland Park, said the shop has a delivery charge of $15, which hasn't changed since gas prices have fallen. It didn't change when gas prices were going up, either, she said, adding that consistency is sometimes best for customers.

However, to spread the wealth from recent savings in fuel costs — which she wouldn't describe in detail — Jenny said all Valentine's Day orders placed between now and Feb. 6 will be delivered for free.

Kim Lyons, 24, a private school teacher who lives in Canton, has lots of student loans to pay off, and two months ago began working an additional 15 to 20 hours a week as a driver for the Baltimore food-delivery startup OrderUp.

When she first considered the job, she was concerned about gas prices but encouraged by the fact they were falling. Now she has recommended it to friends looking for side jobs to help make ends meet, she said.

"This job is great for the extra money, and my one expense is now less expensive," she said. "That's about as good as you can get."

Haluk Kantar, who owns HomeSlyce, which has locations in Canton, Federal Hill and Mount Vernon, credits the lower gas prices with encouraging more people to eat out. What's more, his catering costs are down, and drivers like Ayrac — who are hourly independent contractors — are making more money.

"There's a lot of money in gas," Kantar said. "When costs are down, it's great."


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