The rise in jet fuel is causing airlines worldwide to extend their fares
Fuel is usually the most important cost for airlines. Air Canada spent greater than $5.1 billion on this in 2024, accounting for twenty-four% of the airline’s operating costs – its largest expense.
“The recent sharp increase due to the situation in Iran has already made flights more expensive to operate. Based on this, it is likely that further price adjustments may be necessary,” WestJet spokeswoman Julia Kaiser said in an email.
Air Transat has already began imposing higher fuel surcharges on flights to Europe as jet fuel prices soar. “We are also currently increasing fares on peak travel dates and on routes where we see less competition,” Annick Guérard, CEO of Transat AT Inc., told analysts in a conference call Tuesday.
Air New Zealand, Australia’s Qantas Airways and Scandinavian SAS are amongst the main airlines announcing overseas fare increases.
The price of jet fuel rose 81% last week and was 52% higher on Tuesday than it was on Feb. 27, the day before the U.S. and Israeli attacks, in response to figures from the Platts Jet Fuel Index. The global price, which rose to almost $4.37 a gallon last week, topped $3.67 on Tuesday, up from about $2.41 a gallon on Feb. 27. The rollercoaster ride roughly mirrors crude oil prices, which have risen well above recent levels over the past week and a half and are currently over 40% higher than before the attacks on Iran began.
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Kerosene, diesel and gasoline are all comprised of crude oil and are due to this fact sensitive to cost fluctuations. However, jet fuel has come under essentially the most pressure, in response to Sparta Commodities analyst June Goh. Jet fuel for aircraft tends to have the bottom inventory levels since it must be stored in special tanks, she said. Observers expect a significant shortage in the approaching weeks.
As a result, ticket prices could rise by $100 to $200 for travel from Canada to Europe and as much as $400 for flights to Asia, in response to John Gradek, who teaches aviation management at McGill University.
An Air Canada flight from Toronto to Frankfurt, Germany next month will cost $741 — plus “carrier surcharges” of $380. Despite an obvious reason for the noticeable addition, it’s difficult to find out exactly how much of it’s because of fuel. The top-up results from cost fluctuations related to “fuel, navigation fees, insurance fees or selected peak travel dates…among others,” in response to Air Canada’s booking site.
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“They tend to bury it in general fees,” said Gradek, who called the industry-wide practice “obtuse accounting.” “You can’t trace it.”
Continued disruptions to energy supplies could have an effect on the worldwide economy
If higher fuel prices proceed, more airlines, trucking and shipping firms, and a wide range of related businesses will likely need to pass on a few of these costs to their customers, resulting in greater economic pain.
The US-Israeli war against Iran began on February 28 and brought traffic to a virtual standstill within the Strait of Hormuz, a waterway that normally carries a fifth of the world’s oil shipments.
“The scale of disruption is unprecedented,” energy research firm Wood Mackenzie said in an evaluation. “The industry has never experienced a delivery loss of this magnitude before.”
The Gulf states generally produce 20 million barrels of oil and refined products per day. Three quarters of them have now been taken off the market. Regardless of when the fighting ends, a return to normal supply levels won’t occur quickly.
“Barrels stored in refineries or port could be transported on ships quite quickly. However, if wells remain closed for an extended period, it could take weeks or even longer for production to return to full capacity,” said Simon Flowers, chairman and chief analyst at Wood Mackenzie.
Low-cost airlines are feeling the pinch as fuel prices rise
Low-cost airlines are particularly vulnerable to cost increases. Discount airlines like Edmonton-based Flair Airlines have smaller profit margins and derive a much smaller portion of their revenue from premium seats and business travelers. If ticket prices rise too high, a significant slice of their customer base will simply select to not book.
Many airlines have hedging policies in place to guard against price shocks. As a style of insurance, they assist reduce the danger of fluctuating fuel prices by imposing a set or capped cost on a portion of purchases.
