L1011:

when making your decision don't just look at the present, look ahead.

The best discount I've seen offered is 6.8%. If you get an offer over 6% with a long contract length then its worth while spending some time doing the math. And think about two variables: fuel prices and your expansion plans. Right now, fuel is low and there is little chance of it dropping much below $200 for the rest of the scenario; the trend will be upwards, and likely there will be a spike. When, who knows? But I think it safe to assume it will double and maybe even quadruple before the end of the scenario. You need to factor this risk into your calculations. Second, you are going to expand, probably, and with every additional plane your fuel consumption goes up. But when you have a contract, the price you pay per month for your discount does not. So if you are going to expand a lot, it pays to have a long term contract with a high discount.

Take this example: you current fuel cost is 20 million a month; the discount on offer is 6.5%; the price of the contract is 800,000 per month, and the deal is for 2 years. At your current fuel cost, you would not be making money on this contract. The discount on your current consumption amounts to 650,000 per month (fuel cost/month divided by two multiplied by discount) but you'd pay 800,000 a month for this discount. HOWEVER, if fuel prices doubled and your fleet stayed the same size it would be worth it as your savings would be 1.3 million. OR, if you were to expand and double the size of your fleet, the same thing would apply.

So the calculation is about risk and future expansion plans. You may never get a contract that is a good deal in the present (or if you do it might only be for a short period), but you might get offered a deal that you'd pay for in the short term (four or five months of paying extra) in return of two or more years of getting an ever increasing discount.