High fuel prices hit US aviation in particular
High fuel prices are putting pressure on the airline industry worldwide, but US airlines in particular are feeling the pain. Since the outbreak of war in the Middle East, paraffin prices have more than doubled. For airlines without hedge contracts, this means an immediate and sharp increase in operating costs.
Whereas some European carriers have partially hedged their fuel costs, many US airlines abandoned this strategy years ago. As a result, they are now especially vulnerable to the rapid rise in fuel prices.
High fuel prices double paraffin costs
According to figures from airline organisation IATA, the price of paraffin was still around USD 788 per tonne at the end of February. Meanwhile, that price has risen to around $1,559 per tonne. This rapid rise has direct consequences for airlines, which suddenly see their biggest expense explode.
For a major player like United Airlines, this could amount to an extra cost of as much as $11 billion on an annual basis. Amounts like that force airlines to make hard choices, such as cancelling routes and adjusting their network.
Did you know?
Fuel costs can often account for up to 30 per cent of an airline's total costs, so price hikes directly impact fares.
High fuel prices lead to shortages and surcharges
Besides price increases, regional differences also play a role. In Asia, paraffin prices are even higher than in Europe. In some regions, shortages are even looming. Bangalore airport, for instance, still has limited supplies, forcing airlines to plan ahead and possibly cancel destinations.
European airlines such as Air France-KLM have largely hedged their fuel purchases with hedge contracts. This protects them better against the current price hikes, although it does not mean they are completely immune to the consequences.
For the air cargo sector, this means that new fuel surcharges are inevitable. The first surcharges have already been introduced and are expected to increase further as long as high fuel prices persist.
For shippers and forwarders, this translates directly into higher transport costs and possibly longer delivery times. You can read more about how air transport works and what alternatives there are on the air cargo page.
Pressure on the aviation sector is expected to continue as long as the situation in the Middle East remains uncertain. High fuel prices are therefore a structural risk for both passenger transport and air cargo.
