Aviation Industry Risk 4: Jet fuel prices put financial pressure on airlines and travellers

When US Gulf Coast data showed that the spot price for jet fuel hit $4.10 per gallon on 8 March 2022, it marked the first time prices exceeded the $4 mark since September 2008. Since then, it has only gotten worse. Prices hit as high as $5.07 per gallon in the spring of 2022 and despite some fluctuations were still hovering north of $4 as the summer travel season got underway.

According to IATA’s jet fuel price monitor, global prices in June 2022 were 123 percent higher than in June 2021. Prices are more than double what they were one year ago in large part because of the sanctions on Russian oil and gas put in place as a response to the war in Ukraine.

This is clearly a troubling development for airlines, given that fuel can account for as much as 40 percent of annual expenditures. It’s also bad news for travellers, who are asked to help defray the cost of jet fuel through higher ticket prices. US travellers are paying 33 percent more for domestic flights than a year ago and would-be passengers in Asia and Europe are also facing steep increases. The worst for passengers may be yet to come as airline fares often take months to catch up with fuel cost increases.

Some airlines will be less affected by the price increases than others, as many opt to hedge the cost of jet fuel by purchasing a set amount in advance at a fixed price. An analysis from Reuters found that while some carriers like British Airways are hedged against fluctuating prices for up to two years, others including three of the four largest US-based carriers are not hedged at all and will have to pay the historically high prices.

If jet fuel and airline ticket prices continue to rise, travellers will have yet another powerful disincentive to fly. (See Risk 8)

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