High jet fuel prices’ dramatic impact on airlines and passengers in 2022

As jet fuel prices climb dramatically in 2022, their impact on airlines and passengers has become important once again. Here’s a look at how much airlines spend on fuel every year and how it impacts you.

Fuel prices vary in every country, so to best study the impact we’ll look at three major carriers: United Airlines, IndiGo, and Singapore Airlines. Notably, some airlines even segregate costs by fuel and non-fuel to make clear the impact of prices.

In 2019, United spent $8.9 billion on aircraft fuel, approximately 23% of its $38.9 billion in expenses that year. The only cost greater for United was salaries for its 96,000-strong workforce, which was $12 billion (30%). Fast forward to calendar Q1 2022 and United has spent $2.2 billion on fuel, 10% more than the same time in 2019. However, revenue recovery only stands at 79% of the same period, raising concerns that airlines could enter another loss-making period.

Since March, fuel prices have risen consistently, leading to airline officials sounding the alarm bells that fares must go up. Jet fuel price is up 125% year-on-year and will fuel accounting for 25% of its expenses, fares will rise quickly to offset the prices. However, this distribution is never uniform, and busy routes will be the ones first to feel increasing prices, as some passengers may have already noticed.

Taking a look at IndiGo’s balance sheets and the impacts of fuel prices are even more pronounced. In Q1 2022 (January-March, Q4 fiscal), IndiGo spent ₹3.2 billion ($40.5m) on fuel charges alone. This made up 33% of all costs and marked a 68.2% rise compared to the same time in 2021, which also had comparable traffic.

India faces high government taxes on jet fuel (also known as ATF – aviation turbine fuel), further burdening airline finances in the razor-thin margin market. With some of the highest taxes in the world, carriers have long sought relief from ATF taxes, but to no avail. Therefore, the impact of rising costs has been even more pronounced in India than in other markets.

Singapore Airlines saw fuel make up a similar part of its bill. In the second half of 2021, the carrier spent SG$1.38 billion ($987m) on fuel. This makes up around 28.8% of the expenditure for the half-year, a sharp rise from the rest of the year but comparable to other examples on this list.

Notably, Singapore Airlines’ costs were also affected by fuel hedging, a process by which airlines buy fuel at a fixed price to protect from fluctuations. This has seen several carriers temporarily avoid the worst of the recent rise.

If you look closely, airlines already levy ‘fuel surcharges’ on some tickets to pass on the price to customers. The coming months will see this number increase further as carriers attempt to recover from COVID but strive to avoid losing travelers to surging ticket prices. This is a delicate balancing act and may not work for all passengers. simpleflying.com