Aviation experts in Europe are warning of further ticket price rises, after the price of jet fuel more than doubled since the outbreak of the conflict in the Middle East two months ago.
It comes as the International Energy Agency – which approved a major release of global oil supply earlier in the year in an attempt to mitigate rising fuel prices – warned Europe only has ‘around six weeks’ of jet fuel supplies remaining.
Up to 40% of Europe’s jet fuel is supplied via the Strait of Hormuz and – similar to petrol and diesel – costs have skyrocketed due to the strait’s closure.
The fragile ceasefire did little to help European airlines resupply, and prices for kerosene have risen from €650 per ton prior to the conflict to around €1,500 currently.
As the strait continues to be all but closed to European-bound traffic, prices are set to remain this high, or even increase further.
If prices continue to remain high airlines may be forced to raise their prices significantly.
Indeed, low cost carriers such as easyJet have been warning for weeks of potential price rises due to higher fuel costs, and Air France has announced €100 in cumulative surcharges for long-haul flights.
Similarly, British Airways has upped prices by £28.50 on long-haul flights and £22.50 on short-haul flights.
Jet fuel remains major cost for airlines
“The most immediate concern is the supply of kerosene,” said Michael O’Leary, CEO of Ryanair quoted in le Figaro.
“In collaboration with our fuel suppliers, we are constantly monitoring market prices.”
Jet fuel costs usually represent around 30% of the total cost of a passenger ticket for a flight, the largest single contributor.
However, the increased costs mean fuel currently represents closer to 50% of costs, driving prices up and cutting into airline profits.
“With a 20% increase in kerosene prices, the cost per passenger would rise by 5%. But we’re talking about much larger figures,” said aviation expert at consulting group Indefi Marc Durance.
In Europe, most airlines use fuel hedging to fix fuel prices at a certain level, allowing them to partially offset price increases on a short-term basis, and has seen the impact of the conflict limited for now.
In several other areas, particularly North America, this is not a common practice, placing further pressure on the market as airlines scramble for the lowest possible costs.
Customers hit with higher prices
Airlines across the world have been reluctant to absorb the higher jet fuel prices by temporarily cutting into profits.
They have either increased costs through direct increases to ticket prices – such as in Europe – or higher charges for other options (in the US, the three major airlines of Delta, American, and United have all increased baggage fees).
This points towards a sector pessimistic over the long-term impact of the crisis, and expecting higher jet fuel costs to be in place for several months.
“My company’s average profit is around €10 per passenger… It’s simply impossible to absorb additional costs,” said CEO of Lufthansa Group Carsten Spohr.
However, by increasing prices airlines may be putting customers off from purchasing tickets, particularly as they have one eye on higher bills and fuel prices impacting everyday life.
“By constantly increasing ticket prices, whether through fuel surcharges or other mechanisms, there’s a risk that many customers won’t pay, and that the flight will no longer be profitable,” said Mr Durance.
One potential option is the total cancellation of some flights, reserving fuel for more profitable routes.
Scandinavian airline SAS is planning on cutting 1,000 flights over the coming weeks to reserve fuel and cut costs.
Is a fuel shortage on the horizon?
Alongside reduced passenger numbers, the looming threat of a jet fuel shortage has airlines looking nervously over their shoulder.
Head of the International Energy Agency Fatih Birol said Europe had ‘maybe six weeks left of fuel’ in an interview with the AFP on Thursday (April 16).
The current situation is “the largest energy crisis we have ever faced,” Mr Birol said.
“I can tell you soon we will hear the news that some of the flights from city A to city B might be canceled as a result of lack of jet fuel,” he added.
The European Commission said earlier in the week that there is currently no immediate risk of a kerosene shortage in the EU.
However, “supply difficulties (with kerosene) could arise in the near future,” said spokesperson Anna-Kaisa Itkonen.
If shortages do arise, a priority system for flights would likely be created, seeing state flights and medical flights given priority, then long-haul services, followed by shorter routes.
Indeed, The Airports Council International Europe (ACI group is requesting “urgent monitoring of the availability and supply,” at all European airports over the following six months, to ensure no sudden shortages emerge.
