Airlines Brace for Increased Fuel Price Volatility Next Summer

Fuel Price Exposure

Airlines are set to face increased exposure to fuel price fluctuations next summer, with only 15% to 40% of their fuel needs hedged, significantly lower than the 60% to 80% coverage of the current season. Javier Gándara, President of ALA, highlighted the maximum uncertainty in the market, exacerbated by rising oil prices due to tensions in the Middle East.

Impact on Airline Costs

Jet fuel constitutes roughly 30% of an airline's operating costs. With reduced hedging for the upcoming summer, airlines will need to evaluate how much of the increased costs they can absorb versus what they will pass on to passengers through fare adjustments, which will also be influenced by supply and demand dynamics.

Rising Fuel Prices

Before the Middle Eastern conflict, crude oil prices were below $35 per barrel, but they have surged to around $120. The cost of jet fuel has more than doubled compared to oil prices, creating significant financial pressure on airlines. The gap between the two, known as the crack spread, has peaked at $100.

Additional Cost Factors

Gándara also pointed out the rising costs associated with emissions rights and sustainable aviation fuel (SAF), which will see mandatory usage increase from the current 2% in the coming years. The advanced SAF, which is not yet available, could be priced eight to nine times higher than traditional jet fuel. He advocates for measures to boost SAF production in Spain to ensure air travel remains accessible.

Passenger Trends

This warning comes after a summer when Spanish airlines transported 192 million passengers, a 4.4% increase from the previous year. For the winter season, which started recently, airlines have nearly 146 million seats scheduled, marking a 5.5% rise. However, Gándara advises caution in interpreting these figures, as capacity cuts will likely reduce these estimates.