As travel demand reaches levels not seen since the COVID-19 pandemic, the airline industry will face a price spike that could increase the cost of tickets and hamper financial recovery efforts.
The surge in jet fuel prices spurred by Russia’s invasion of Ukraine is putting further pressure on the airline industry, just as it is in full recovery from the pandemic.
According to the S&P Global Platts Jet Fuel Price Index, the price of jet fuel jumped to US$141.70 per barrel as of March 4, an increase of 27.5% from the previous week and 96.2% compared to the same period last year. The International Air Transport Association (IATA), a lobby group that represents 290 airlines including Air Canada, WestJet and Air Transat, previously predicted the airline industry would lose $11.6 billion in 2022 with the price jet fuel at $78 a barrel, which is 20% of total costs.
With the cost of jet fuel nearly double, airlines stand to lose even more this year.
“Absorbing such a massive hit to costs as the industry struggles to cut losses as it emerges from the two-year COVID-19 crisis is a huge challenge,” the chief executive said. IATA, Willie Walsh, in a press release, warning that soaring fuel costs could impact fares as airlines try to recoup losses.
“If the price of jet fuel remains this high, then over time it is reasonable to expect this to be reflected in airline returns.”
Some airlines are already considering raising their prices in the wake of rising fuel prices. Transat AT (TRZ.TO) chief executive Annick Guérard said on a conference call with analysts last week that the airline is “adapting” fares in response to rising costs.
“We are looking at all the programming that we have planned for the summer, and we are using (Airbus A321 neo planes), which are very fuel efficient planes, which is going to be beneficial for us and give us an advantage in the future. .season,” she said.
“We are adapting our pricing structure. We are also seeing some evolution in terms of fuel charges in the Atlantic market, so that is reassuring.”
The fuel price challenge comes as Canadian airlines ramp up capacity ahead of what is expected to be a busy summer season.
Air Canada (AC.TO) announced last month that it would extend its summer schedule, relaunching 34 international routes, some of which have been suspended since the start of the pandemic in March 2020. Last week, Transat announced that it was relaunching a “significant” number of routes to Europe and the United States as COVID-19 restrictions ease. On Monday, WestJet unveiled its summer schedule which includes the full reinstatement of the service throughout Alberta at pre-pandemic levels.The Calgary-based airline will also offer more transatlantic routes, flying from Calgary to London, Paris, Rome and Dublin, and from Toronto to Barcelona, Dublin, Glasgow, Edinburgh and London.
Cowen & Co. analyst Helane Becker wrote in a note to clients that there is a three to four month lag before travelers see the impact of rising fuel costs on fares. aerial. She says rising fuel costs may also impact the extent to which capacity is revived.
“Generally, growth may slow or, as is currently the case, the capacity that airlines would have brought back if the pandemic continued to recede will not return.”
“It’s likely that the next few months will be financially worrying, even with heavy traffic,” Becker said.
Alicja Siekierska is a Senior Reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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