- Fuel prices have shot up nearly 57% a barrel over the past year.
- Airlines around the world are expecting profits to fall 12% during 2018.
- American Airlines CEO and others warn that the extra costs could be passed onto passengers through higher ticket prices.
The big news coming out of this year’s International Air Transport Association Annual General Meeting is that airlines are feeling the pain from skyrocketing fuel prices and soon consumers will too.
Over the past year, the price of Brent crude oil has shot up nearly 57% to more than $US75 a barrel. And things are only expected to get worse for airlines.
IATA’s latest projections show that the price of jet fuel is going to reach as high as $US84 a barrel.
With fuel representing roughly 25% of an airline’s overall operating expenses, expect the airlines to pass on the cost to consumers.
According to Reuters, American Airlines CEO Doug Parker, once again, cautioned the crowd at IATA’s yearly get together of industry leaders, that ticket prices will go up as airlines reduce the number of seats available for sale to save on fuel costs.
Parker made a similar prediction during the airline’s latest earnings call.
“Oil is our second largest expense, so when it increases, the cost of air travel increases,” the American Airlines CEO said in late April. In fact, Parker noted that fuel prices surged by an incredible 12% just in the two weeks preceding the call.
The effect of rising fuel prices is expected to be industry-wide.
IATA expects total profit for airlines around the world to shrink by 12% during 2018 to $US33.8 billion even though air travel is projected to grow at a healthy 7%. Airlines from North American are expected to account for $US15 billion or 44% of the industry’s global profits. That’s down from the $US18.4 billion in profit generated in 2017.
Between mid-2014 and early 2015, crude prices fell by more than 55% to roughly $US50 a barrel. In the years since cheap fuel and cautious growth coupled with booming demand for air travel have ushered in the most profitable era in the history of US airlines. Lower crude prices have also translated to lower ticket prices. According to the US Department of Transportation, the average price of a plane ticket in the US fell by 15% from $US410 in 2014 to $US347 in 2017.
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