Rising jet fuel costs threaten higher fares and fewer flights

Airlines may raise ticket prices and cut flights as jet fuel costs climb, analyst Jacob Pedersen told DR. SAS expects an additional fuel bill of 2.2 billion kroner and forecasts spending about 30 percent more on fuel this year than previously expected.

Paul Verhagen, SAS’s commercial director, disclosed the estimate to the Danish financial news outlet Finans.

Jet fuel is one of the largest expenses for airlines, accounting for roughly a quarter to a third of their total costs, according to Pedersen, an investment strategist at Middelfart Sparekasse.

He said the rapid rise in fuel prices could push some airlines from solid profits into losses. However, he does not expect major carriers such as Air France-KLM and Lufthansa to face financial difficulties. Instead, their earnings could decline in the coming years, he said.

Airlines may pass costs to passengers

Airlines can protect themselves against higher fuel prices by locking in prices well in advance. If they have not done so, there are few options left, Pedersen said.

They can pass the increases on to passengers through higher fares or reduce the number of departures to save fuel. Some airlines have already cut flights, and Pedersen expects ticket prices at some carriers to rise considerably in the near future.

Tickets available for booking now are likely to cost more than they did previously because of higher fuel prices, he said.

The coming months will be especially challenging because autumn and winter are traditionally a quieter period for airlines. Pedersen said carriers could face a severe cash shortfall until early spring, when people begin booking their summer holidays.

Fuel prices, along with the prices of several other energy products including petrol and diesel, have risen sharply since the war between the United States and Iran began on 28 February. The source article says Israel and the United States carried out a joint attack on Iran, which responded in part by closing the Strait of Hormuz, a route normally used by large ships carrying about 20 percent of the world’s oil and liquefied natural gas.

DR News said it had contacted SAS for comment, but the airline had not responded.