Aviation fuel prices have remained high, and are likely to impact ticket prices in the near term, a top international aviation official warned on Wednesday.
The ‘crack spread’ – or the difference between the price of Brent crude and jet fuel price – is at its widest since the beginning of the year, said Willie Walsh, Director General, International Air Transport Association (IATA).
If this gap doesn’t reduce, we are looking at a hike in airfares, Walsh said.
“Airlines don’t have the capacity to absorb the cost,” he added.
Walsh also elaborated that refiners, who were quick to turn off their jet fuel taps when demand waned, have not been increasing supply as demand recovers.
“And then we have monopoly suppliers, who have artificially kept the prices up,” Walsh said.
Last week, jet fuel was priced at $140.6/bbl, and has averaged $143.1 year-to-date, according to IATA data, compared to Brent crude, which has hovered around the $100 mark. It averaged $106.7 in July.
However, IATA is confident that the industry will continue to perform well despite the inflation threat and the high fuel prices.
Robust passenger demand
Middle Eastern airlines saw traffic climb 193.1 per cent in July compared to July 2021. Capacity for the month rose 84.1 per cent versus the year-ago period, and load factor climbed 30.5 percentage points to 82.0 per cent.
Globally, total traffic in July 2022 (measured in revenue passenger kilometres or RPKs) was up 58.8 per cent compared to July 2021. Total traffic stood at 74.6 per cent of pre-crisis levels, the aviation body said. Domestic traffic for the month was up 4.1 per cent compared to the year-ago period, while international traffic rose 150.6 per cent versus July 2021.
“July 2022 international RPKs reached 67.9 per cent of July 2019 levels. All markets reported strong growth, led by Asia-Pacific,” IATA said
“July’s performance continued to be strong, with some markets approaching pre-COVID levels. And that is even with capacity constraints in parts of the world that were unprepared for the speed at which people returned to travel. There is still more ground to recover, but this is an excellent sign as we head into the traditionally slower autumn and winter quarters in the Northern Hemisphere,” Walsh said.
Economy ahead of premium
Recovery trends for traffic in the premium and economy cabin classes are usually aligned, IATA said, apart from past summer seasons during which economy class travel took the lead. This divergence has emerged again in 2022 with economy class RPKs – which include premium economy (and account for 92 per cent of total RPKs) – at 71.5 per cent of their January 2020 levels in July 2022. Premium RPKs – which capture travel in first and business class cabins – reached a more modest 67.7 per cent of January 2020 traffic levels in May.
Cargo nears pre-pandemic levels
Global air cargo markets in July were close to pre-pandemic levels (down 3.5 per cent), but significantly below July 2021 performance (down 9.7 per cent).
Global demand, measured in cargo tonne-kilometers (CTKs) fell 10.2 per cent for international operations. Compared to July 2019, demand stood 3.5 per cent lower. This was even as capacity went up 3.6 per cent compared to July 2021 (up 6.8 per cent for international operations).
Middle Eastern carriers saw a 10.9 per cent year-on-year decrease in cargo volumes in July, while capacity was up 4.9 per cent compared to the year-ago period.
A fall in new export orders and continued impairment of cargo facility to Europe because of the ongoing war in Ukraine were among the top reasons for the dip.
“Volatility resulting from supply chain constraints and evolving economic conditions has seen cargo markets essentially move sideways since April. July data shows us that air cargo continues to hold its own, but as is the case for almost all industries, we’ll need to carefully watch both economic and political developments over the coming months,” Walsh said.
Nigeria needs to do more
Walsh said that Nigeria’s move to release part of the airlines’ blocked funds is a positive step, but the country needs to do more if it wants to remain a major player as passenger demand picks up globally. Otherwise, airlines will start looking for alternatives.
“The airlines need to know that going forward they will be able to repatriate funds. It’s not a situation they would want to be in again,” the IATA Director General said. “Airlines will be forced to look at other markets where recovery of funds is easy and assured.”
In the last week of August, the Nigerian central bank released $265 million to settle ticket sales owed to airline operators. Nigeria - Africa’s biggest economy - owes carriers $464 million, the IATA said earlier. Subsequently, Dubai-based Emirates – which had suspended flights to the country – said it would resume operations to Lagos starting September 11.
Speaking about the recent alliance between Emirates and United Airlines, Walsh said the move had become necessary for airlines who are seeing a spike in demand but have been unable to boost supply at the required speed.
“We will see more such alliances as airlines rebuild their networks and demand climbs,” he said.
“If you can’t do it directly, you need to do it with other airlines.”