Fuel price spike and Russia-Ukraine crisis risk airlines' recovery, Iata says

Higher jet fuel prices will pressure airlines’ operating costs and may lead to higher fares on some routes

A flock of birds flies with a Turkish Airlines Airbus A321 aircraft as it approaches Zurich Airport. Reuters

The Russia-Ukraine conflict will have a “negative impact” on travel, mainly among neighbouring states, while the spike in fuel prices is pressuring costs of global airlines emerging from the two-year Covid-19 crisis, the International Air Transport Association said.

Iata's latest financial forecast for the industry in October, which expected airlines to lose $11.6 billion in 2022 with jet fuel at $78 per barrel and fuel accounting for 20 per cent of costs, means airlines' yields are likely to take a hit from oil prices that have reached more than $100 per barrel if those highs are sustained, Iata said.

“Absorbing such a massive hit on costs just as the industry is struggling to cut losses as it emerges from the two-year Covid-19 crisis is a huge challenge,” Willie Walsh, director-general of Iata, said. “If the jet fuel price stays that high, then over time, it is reasonable to expect that it will be reflected in airline yields.”

With the international airlines suffering from a sharp rise in oil prices, the additional cost of rerouting flights to avoid Russian airspace is expected to drive up ticket prices and air cargo rates.

Oil prices surged past $130 a barrel on Tuesday, their highest level since 2008, after US President Joe Biden announced that the US would ban crude, gas and coal imports from Russia. Prices eased as the UAE envoy to the US said the country supports increasing oil output amid tight market conditions.

Ukraine market accounted for 3.3 per cent of European passenger traffic and 0.8 per cent of global traffic in 2021, according to Iata.

The Russian international market represented 5.7 per cent of European traffic (excluding Russia's domestic market) and 1.3 per cent of global traffic in 2021.

Airspace closures have led to rerouting or cancellations of flights on some routes, mostly in Europe-Asia but also in the Asia-North America market.

“This impact is mitigated owing to greatly diminished flight activity since borders in Asia were largely closed owing to Covid-19,” Iata said.