The rise in oil prices in recent months will pressure the profitability of airlines and will likely result in increased airfares in the coming months, according to airline executives.
The price of oil generally accounts for around 30 percent of the costs at an airline. Since June 2017, oil prices have risen by more than 50 percent to around $68 per barrel Brent on Monday.
The CEO of the International Air Transport Association (IATA), Alexandre de Juniac, told Bloomberg TV on Monday that the current range of oil prices—$60-$70—is an “acceptable” range. The IATA forecasts that oil prices will stay within this range this year, but if they rise too much over $70, it would result in increases in ticket prices, as usual, de Juniac said.
“It puts pressure on costs and it is more a fare inflation trigger,” the IATA chief executive told Reuters on the sidelines of the Singapore Airshow today.
Executives at Asian Pacific and European airlines think that rising oil prices will eat into their margins because the airfare hikes have been lagging the rise in the price of oil.
China’s Okay Airways, for example, saw its fuel costs increase by 20 percent last year compared to 2016, which affected its profits. Li Zongling, Okay Airways president, has estimated that the higher oil prices last year led to some 5 percent drop in earnings. Related: Can We Expect A Rise In Gulf Of Mexico Oil Production?
Australia’s Qantas Airways is adding more fuel-efficient jets and is cutting costs elsewhere.
“Despite fuel prices being higher than last year, we are digesting fuel very well at the moment,” Qantas CEO Alan Joyce told Reuters.
Low-cost air carrier Ryanair sees higher oil prices leading to a hike in short-haul airfares in Europe, but not until 2019, according to CEO Michael O’Leary.
As of January 26, the average global jet fuel price was at $85.5 a barrel, up by 7.9 percent from a month ago, and up 30 percent from a year ago, according to IATA data provided by Platts.
By Tsvetana Paraskova for Oilprice.com
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