Fuel price surge is driving fares higher, says global airline chief

Geneva: The world’s air transport body has warned airlines will not be able to absorb the cost of jet fuel as it continues to rise due to the war in Ukraine.

The director of the International Air Transport Association Willie Walsh told a global convention in Geneva on Tuesday that airlines make roughly one US dollar per passenger and that it was unreasonable to expect them to absorb a 54 per cent increase to the cost of fuel since the onset of the war between Russia and Ukraine.

The cost of jet fuel has risen by 54 per cent since the start of the war in Ukraine.Credit:AP

“I know this isn’t an answer that a lot of people would like to hear, but the realities of the industry are very important. If the oil price increases, then ticket prices will have to increase to reflect that increase,” Walsh said.

Jet fuel prices are expected to average $US138.8 per barrel for 2022, sending the industry’s expected fuel bill to $US229 billion ($342 billion)for the year.

Overall costs for the industry are expected to grow by 5.3 per cent to $US776 billion, 1.8 per cent below expected revenue growth.

The aviation body expects the world’s airlines to return to profit in 2023 despite ongoing economic headwinds. The global industry is forecast to make a net profit of $US4.7 billion, its first since 2019’s $US26.4 billion.

IATA said passenger operations are expected to generate $US522 billion in revenue as demand rises to 85.5 per cent of 2019 levels over the course of the year. The prediction accounts for the uncertainty surrounding China’s return to the market which the body deemed “critical” to avoiding global recession.

Walsh was optimistic the ongoing headwinds including fuel increases and supply chain issues were manageable challenges that the industry has navigated previously, unlike the COVID-19 pandemic.

One of the key issues regarding China’s return for the carriers of other regions is whether to reopen to Russia’s air spaces or risk losing market share.

“When China relaxes restrictions and reopens then the issue of access to Russian air spaces becomes a killer question for European carriers. I think we have to look to the reopening of Russian air space so the European carriers can access Asia,” Walsh said.

Walsh also flagged efforts to decarbonise the industry were likely to result in an increase to fares. The global aviation industry is responsible for about 2.5 per cent of the world’s emissions, a bigger contribution than Australia’s.

The International Air Transport Association’s chief Willie Walsh says China’s return to the air is critical for the industry.Credit:Bloomberg

IATA estimates the aviation sector will need to invest $US4 trillion in offsets and sustainable fuel through to 2050 to achieve emissions reductions compatible with a 1.75 degree carbon cap, which works out to an annual investment of $US192 billion.

The association’s 290 airlines has called on governments to support sustainable aviation fuel investment as the way to decarbonise the industry.

Made from crops, household waste, animal fat and other biomass, sustainable aviation fuel produces about one-fifth the emissions of conventional jet fuel at about three times the cost.

Walsh said too much oxygen was given to the practicalities of whether airlines and airports will adopt the sustainable fuel and not enough energy given to its production.

“The industry has used every single drop of the available sustainable aviation fuel despite a significant premium. You don’t need to convince our industry to use it. You’ve got to consider others to produce it,” Walsh said.

There’s currently only enough sustainable aviation fuel produced to replace less than one per cent of the global industry’s needs.

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