The latest challenge for airlines: rising jet fuel prices

A JetBlue Airways plane travels by taxi alongside American Airlines, Delta Air Lines and Alaska Airlines planes at Reagan National Airport (DCA) in Arlington, Virginia, Monday, April 6, 2020.

Andrew Harrer | Bloomberg | fake images

The oil rally is carrying jet fuel, representing another headache for airlines still struggling with travel demand slump in the Covid pandemic.

US jet fuel prices hit a nearly 13-month high of $ 1.67 a gallon on Wednesday, according to data from S&P Global Platts, a rise led by an Arctic explosion and winter storms that disrupted production. oil refining and transportation. Millions of people were left in the cold and dark in Texas, which relies heavily on natural gas for heating and power.

“We expected fuel to be at these levels by the second half of the year,” said Raymond James airline analyst Savanthi Syth. The more expensive fuel can make it harder for airlines to contain their cash consumption, a goal that has already been delayed due to weaker-than-expected demand.

Headwind cost

Spirit Airlines CFO Scott Haralson, during an earnings call on February 11, cited higher fuel costs as one of the discount carrier’s first-quarter challenges. The airline expects fuel costs to rise 32% this quarter from the final three months of 2020. Greg Anderson, CFO of Allegiant Travel Co., parent of Allegiant Air, also cited higher fuel costs as a hurdle. during a quarterly call on February 3.

The production of jet fuel is one of the biggest expenses for airlines along with labor. Fortunately for carriers, labor costs are currently backed by billions in federal aid, helping to soften the impact of more expensive fuel, Syth said.

Jet fuel consumption plummeted over the past year as airlines slashed flights amid a drop in demand for air travel. That caused prices to drop dramatically and airline fuel bills also dropped. American Airlines, which stopped covering fuel in 2014 when oil prices plummeted, said in a securities filing this week that its $ 3.4 billion fuel bill last year accounted for just 12% of its costs, versus to a 22% share in 2019 when the price fell. and its consumption was reduced by approximately half.

“Based on our predicted mainline and regional fuel consumption for 2021, we estimate that an increase of one cent per gallon in the price of jet fuel would increase our annual fuel expense in 2021 by $ 38 million,” the company said in the annual presentation.

Demand rebound

US jet fuel consumption so far this year is still nearly a third from last year, according to a Citi report this week.

The supply disruptions were enough to boost prices, but to sustain their escalation, travel demand must also rebound, said S&P Global Platts analyst Lenny Rodriguez. Daily airport checks from the Transportation Security Administration have averaged more than 810,000 a day this month compared to 2.1 million during the same period last year.

That weak demand makes refining jet fuel less attractive compared to other petroleum products.

“This is the lag for all oil products,” Rodríguez said.


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