Jet fuel costs have risen to approach 14-year highs in tandem with the rise in crude oil prices as a result of supply shortage concerns, hammering air carriers and passengers with substantial price hikes just as the industry was beginning to recover from the effects of the Covid-19 restrictions.
Following Russia’s invasion of Ukraine, oil prices have risen to their highest level since 2008. This is due to a supply glut that has lagged behind rebounding global demand, as well as a restriction on Russian oil imports by the United States.
Since Russian soldiers invaded Ukraine on February 24, the price of global crude oil benchmark Brent has risen by more than 26% to more than $120 a barrel, spurring a global scramble by importers to obtain alternatives to Russian crudes that are at risk of being sanctioned.
Singapore jet fuel prices JET-SIN have outperformed Brent since February 24, reaching $150 a barrel for the first time since July 2008. The competition for crude has driven up prices for refined products that will be affected if crude supplies tighten.
Jet fuel prices in both Europe and the United States have seen comparable increases, putting pressure on global carriers, which have already been hit hard by Covid-19 over the last two years, to pass on increasing expenses to passengers through fuel surcharges and fee increases.
As a result, rate increases run the risk of undercutting a recovery in air travel that has gained steam as international border restrictions have been lifted.
“Going forward, traveling (by air) will become more expensive than it already is. Because of the inflation that has occurred across countries, most consumers have shallower pockets, less disposable income, and fewer options “According to a jet fuel broker headquartered in Singapore.
She predicted that more travelers would limit their travel plans to “essential” trips, and that restrictions associated to the pandemic – such as the requirement for positive Covid tests in many countries – would add to the uncertainty for those who were planning to go.
As oil prices rose in 2007/2008, fuel surcharges were a common element of travel, with Aer Lingus charging up to €100 on flights to San Francisco and Los Angeles at one point in the year.
According to the aviation statistics firm OAG, global airline capacity fell by 0.1 percent this week to 82 million seats, remaining 23 percent below the same week in the pre-pandemic year of 2019.
Compared to the previous week, total scheduled airline capacity in North East Asia decreased by 4.5 percent, the most significant decline of any area, while international capacity to and from the region remained 88 percent below the same week in 2019.
The domestic flight schedules in the United States were on course to surpass those of 2019 this spring, but increasing fuel and ticket prices now threaten to reverse that trend.
“Airlines will be driven to increase their credit limits once more, and suppliers will become less inclined to offer unsecured terms. It’s possible that we’ll see some more casualties following Covid now, just as the recovery was beginning to appear more promising “a top trade source in London confirmed the report.