Fuel prices send higher air fares, but passengers seem willing to pay

A staggering rise in jet fuel prices has pushed up air fares, and industry experts say they could be higher. For now, though, travel-starving consumers seem willing to pay.

Jet fuel prices have stabilized somewhat since Russia’s invasion of Ukraine last month, but the market has remained volatile. The problem is particularly acute in New York, where fuel prices have nearly quadrupled in recent days to just over $ 7.50 a gallon.

Supply is severely limited and prices have risen across the country. The Department of Energy said this week that inventory levels for East Coast jet fuel stood at 6.5 million barrels, the lowest since the agency began keeping track in 1990.

“Jet fuel has taken the most parabolic step I’ve ever seen for any transportation fuel,” said Tom Klose, the world leader in energy analysis of oil price information services. “It’s just insane.”

Rising prices affect not only air fares, but also the already high cost of shipping worldwide. On Wednesday, for example, Amazon announced plans to impose its first “fuel and inflation surcharge” on sellers whose products it stores and distributes.

Airlines have been able to pass on some of their extra fuel costs to consumers, many of whom are interested in traveling after being deprived of the opportunity for two years.

According to the airfare-tracking app Hopper, earlier this year, the average cost of a round-trip domestic flight was $ 235. Since then, ticket prices have risen 40 percent to 330. Adit Damodaran, an economist at Hopper, which tracks prices for flights and hotels, said the company expects a further 10 percent rise to $ 360 by the end of May, before prices fall again in the summer.

“Not only are current prices paying travelers extremely high compared to historical pricing data, but the growth rate has also been particularly steep since January,” he said.

In addition to the rising cost of jet fuel, Mr Damodaran said the reason for the increase in air fares was the general seasonal pattern and the fact that demand was suppressed at the beginning of the year as the Omicron coronavirus variant spread.

Some airlines have reduced flights in response to continued staff shortages, created greater competition and increased fares for the remaining flights.

Carriers typically pass on to consumers 60 percent of the volatile rise in fuel prices, experts say, a process that usually takes several months. This time, however, the industry has been able to outperform costs more quickly due to the high demand during the epidemic and changes in consumer behavior towards the purchase of tickets closer to the date of travel.

“We’re successfully recovering a significant portion of our fuel costs,” Del Bastian CEO Ed Bastian told investment analysts and reporters in a call Wednesday. “It’s happening in almost real time because of the high demand environment.”

Mr Bastian said Delta, the first major carrier to report financial results for the first three months of this year, has seen a strong comeback so far and is preparing for a strong spring and summer.

The Delta Quarterly paid an average price of $ 2.79 per gallon of jet fuel, up 33 percent from the same quarter last year. The price included 7 cents per gallon of savings from the airline’s refinery outside Philadelphia. Delta said it would increase fuel prices by another 15 to 20 percent in the next three months, ranging from $ 3.20 to 35 3.35 per gallon, a range that includes about 20-cent savings responsible for refineries.

The price of jet fuel, like petrol and diesel, usually rises with crude oil.

In February, American Airlines reported that the price paid per gallon of jet fuel increased by more than a third compared to last year, from $ 1.48 in 2020 to 4 2.04 in 2021. At the time, it said growth of one percent in each continued. The price per gallon will increase its fuel consumption by about $ 40 million by 2022. This week, American estimates it paid $ 2.80 to 8 2.85 per gallon in the first quarter of the year.

Rising fuel costs and rents seem to be doing little to discourage consumers. Mr Bastian said Wednesday that March was Delta’s best-selling month of all time, setting a record in 2019, despite 10 percent fewer seats. According to an analysis by the Adobe Digital Economy Index, which has attracted online sales from six of the top 10 US airlines, domestic flight fares increased by nearly 20 percent across the board between March 2019 and March 2022.

“We’ve all been stuck at home for two years, and I think now that we have a chance to get out, we have to be willing to pay a lot of money,” said Joe Rohlena, chief airline analyst at Fitch Ratings. “If traveling outdoors remains expensive, you can see the desire to refund such high ticket prices.”

The epidemic has severely reduced air travel, so it is not surprising that jet fuel prices have fallen more deeply than petrol prices two years ago. For most of 2020, as epidemics throttle all forms of transportation, American refineries reduce their jet fuel output – usually a reliable profit – by one million barrels a day.

But even in cyclical businesses such as refining, the recovery of jet fuel is noticeable.

Richard Joswick, head of global oil analysis at S&P Global Commodity Insights, said that although the flow of jet fuel in the pipeline has increased, it has not kept pace with demand.

Several shipments scheduled for New York this month were redirected to Los Angeles via the Panama Canal as California’s fuel prices began to rise. Other fuels were redirected to Baltimore and Washington because supplies were scarce.

“It’s like a water balloon – you press it in one place, it explodes somewhere else,” said Mr Joswick.

Experts are predicting price increases in the Rocky Mountain region and west coast as the summer travel season peaks in July and August. Elsewhere in the country, stocks are even lower, with many airports having only three-day supply stocks, jeopardizing schedules in the event of bad weather such as a hurricane.

Refineries produce jet fuel from the same batch of oil as diesel, and refineries are producing as much diesel as possible. Europe has reduced its Russian diesel purchases since the Ukraine invasion, and has instead imported more diesel from the United States, even recovering truck and rail traffic.

Another contributing factor is the closure of refineries in Europe and North America in recent years. Since January 2019, refinery capacity in the United States has fallen by 5 percent and in Europe by 6 percent, according to Turner, Mason & Company, a Dallas-based consulting firm.

John Avers, Mason’s executive vice president, said it was difficult to produce more jet fuel when the market was in high demand, and equally difficult to produce more diesel when there was a demand for more jet fuel in the market. “People are traveling, driving and flying, and there’s more trade, so we’re going to have a tough market,” he said.

Although higher jet fuel costs have hurt airlines and consumers, refinery executives are happy for additional business after two years of low profits.

Linda Salinas, vice president of Texmark Chemicals, a Texas company, said: “Travel has increased and fuel demand has increased, and the impact of the Russian invasion on prices, fortunately or unfortunately, is good for oil companies and jet fuel producers.” Which produces renewable jet fuel from unsustainable diesel made from used cooking oil and waste.

Leave a Comment

Your email address will not be published.