As if the airline sector needed another trouble on top of the reduced travel demand due to the pandemic, oil prices at their highest in a year are set to raise jet fuel costs for the industry that has been suffering a lot from the lockdowns, flight bans, border closures, and quarantines with COVID-19.
Oil prices hit a one-year high this week amid signs of a tightening oil market and risk appetite from investors and speculators.
Higher crude oil prices, however, mean higher fuel prices for airlines, which have been one of the worst-hit industries in the pandemic.
"This is just one of a litany of concerns when it comes to the airline industry. We would avoid these companies and that group," Chad Morganlander, portfolio manager Washington with Crossing Advisors, told CNBC's "Trading Nation" this week.
According to the analyst, airlines are indebted, and higher oil prices are making them less profitable and flexible.
The latest data from the International Air Transport Association (IATA) shows that as of January 29, the jet fuel price globally was 5.3 percent higher than a month ago.
The airline industry needs a lot more people to be vaccinated to allay fears and to make governments allow travel without quarantine restrictions.
Jet fuel demand will be the last segment of fuel demand that will recover from the pandemic.
Airline travel will continue to suffer in the first half this year and will only recover, and jet fuel consumption with it, in the back half of 2021, when mass vaccinations are poised to allow traveling to more destinations quarantine-free, according to the world's largest independent oil trading firm, Vitol. Vaccination passports could be inevitable for the tourism and airline industries to rebound from the pandemic hit, Mike Muller, the head of Vitol's operations in Asia, said at the online Gulf Intelligence conference, as carried by Bloomberg.
Continued low demand for jet fuel will account for 80 percent of the 3.1-million-bpd gap in oil demand this year compared to pre-pandemic levels, the International Energy Agency (IEA) said in December.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More