Soaring fuel prices are beginning to bite airlines, forcing some to trim schedules while others warn of rising airfares. Jet fuel prices are at 14-year highs amid ongoing global supply concerns. Two high-profile US carriers have already warned they’ll cut capacity in response while others scramble to deal with the problem.
Fuel is typically a substantial operating expense for airlines. While it will vary between carriers, fuel normally accounts for 15-20% of an airline’s total operating costs. But the current price rises threaten to blow out fuel costs as a proportion of overall operating costs. It leaves airlines with the option of increasing airfares or looking elsewhere for savings.
Alaska Airlines moves to cut schedules up to 5%
According to a Bloomberg report, Seattle-based Alaska Airlines is cutting its scheduled capacity by up to 5% in the first half of 2022 due to rising fuel prices. “Fuel prices have been volatile as a result of the conflict in Europe and Russia’s ongoing invasion of Ukraine,” the airline says in a March 8 SEC filing.
“As a result, we expect our first quarter economic fuel cost to be US$2.60 to $2.65 per gallon versus our prior expectation of $2.45 to $2.50 per gallon. Given the sharp rise in fuel costs, we have slightly moderated our capacity outlook for the year and now expect capacity to be down 3% to 5% in the first half of the year.
“We continue to plan for a return to 100% of pre-COVID capacity by summer followed by growth in the second half of the year and will continue to prudently adjust capacity as necessary in response to the evolving fuel environment.”
Alaska Airlines is trimming its schedules by up to 5% in response to rising fuel prices. Photo: Denver International Airport
Some major US carriers are unhedged amid fast-rising fuel prices
Las Vegas low-cost carrier Allegiant Airlines has also confirmed they will cut their second-quarter schedules up to 10% because of rising fuel costs. The airline says it will do this by trimming capacity during periods of weaker demand. Meanwhile, Reuters is reporting the three big US airlines – Delta Air Lines, American Airlines, and United Airlines are going into this era of sky-high fuel prices fully unhedged.
A global crude oil benchmark, Brent crude is up 26% since Russia invaded Ukraine on February 24. Since that same date, Singapore jet fuel prices are up 35%. Bloomberg also notes spot jet fuel prices for delivery in New York Harbor have jumped 76% this year to $4.06 a gallon.
“A 737 right now costs a little over $36,000 to fill up versus $24,000,” Richard Manrgum, Aeronautics Professor at Kent State University, told Ohio-based news outlet WKYC. “An even larger aircraft like a 747 going from New York to London burns about 21,000 pounds of fuel, which is about $116,000 of gas right now.”
Several major US airlines are fully exposed to rising jet fuel prices. Photo: Denver International Airport
Salt Lake City-based Breeze Airways’ Gareth Edmondson-Jones said the rising fuel prices would add about $5 per passenger per hour in extra operating costs. “If it’s a two-hour trip, an extra $10 in fare. If it’s a four-hour trip, then $20. It’s nothing we really want to do, but ultimately if fuel continues to go up, we’re going to have to amend prices.”
But with passengers just starting to take to the air again after COVID-19 grounded much of the industry and many passengers still skittish about flying, most airlines are loathe to start increasing fares. However, unless well-hedged, airlines will have to start making some hard decisions to counter fast-rising fuel costs.
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