In the last ten days, the price of aviation fuel has increased by more than 30 percent, and it is completely abnormal. For the airlines, there is a real headwind, says Hans Jørgen Elnæs, analyst at WinAir.
Because after Russia invaded Ukraine, oil prices have risen sharply, reaching over $ 135 a barrel on Monday. It also has major consequences for the airlines’ expenses for fuel, which they will probably have to recover from customers:
– We will probably have to count four to six weeks before something happens in the market, in the form of ticket prices being increased, says Elnæs.
– Follow closely
Flyr’s CEO, Tonje Wikstrøm Frislid, tells TV 2 that they have not decided what they want to do:
– Tonje Wikstrøm Frislid is CEO of Flyr. Photo: Bjørn Roger Brevik / TV 2
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– We in aviation are used to large fluctuations and a market that is changing, so we have to look at it. For the time being, we are following the situation closely, she says.
So does Norwegian:
– Ticket prices are always governed by supply and demand, and it is of course a challenge for all airlines that fuel prices have increased. We have not decided on a fuel supplement now, says Esben Tuman, communications director at Norwegian, to TV 2.
Nor has SAS decided what this could mean for ticket prices:
“Fuel surcharges are a solution the industry has used in the past, for example during the Iraq war, but SAS has not made a decision on that at the moment,” says press manager John Eckhoff in SAS.
How much up?
Airlines can also recoup increased fuel costs by canceling routes or departures that are not profitable enough. They can also try to cut other costs.
– Flight analyst at WinAir, Hans Jørgen Elnæs. Photo: Aage Aune / TV 2
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Hans Jørgen Elnæs still believes that customers will have to take some of the bill:
– How much can customers expect prices to go up?
– A rule of thumb is that if the fuel price goes up by 10 percent, then the ticket prices must be increased by three percent. But here the competition in the market also comes into play, so it’s a bit early to say. But I am sure that one must reckon with the fact that it will cost more to travel by plane ahead and towards the summer, than it did last year, says Elnæs.
Competition
Some airlines in the international market, such as Ryanair and KLM, secured themselves last year with agreements on cheaper fuel, which they can now take advantage of. These companies therefore do not need to raise ticket prices to customers as a result of the oil price jump.
Neither SAS, Norwegian nor Flyr have made such so-called hedging agreements, and must therefore pay the market price for aviation fuel. But these companies will probably not raise ticket prices so sharply that they lose competitiveness with, for example, Ryanair and KLM, Elnæs believes.
– In addition, there is strong competition between Norwegian, SAS and Flyr. Who will be the first to raise prices? It will be exciting to follow, he says.
Is the summer holidays dropping?
The airlines have had very tough times during the pandemic, and should now finally get the passengers back in full after the coronary restrictions have been eased. Travel companies and airlines have experienced great demand throughout the winter, and typical southern destinations are almost sold out for Easter.
But the war in Ukraine has provided more uncertainty, and Finn Reise reports a drop in bookings to Eastern European countries.
There is also uncertainty about whether the travel boom will last, as many families notice increased living costs at record high electricity prices, more expensive petrol and increased food prices.
Hans Jørgen Elnæs believes that Norwegians will still prioritize travel, especially for the summer holidays:
– It’s a little scary what’s happening now, when we see that there is a sharp increase in electricity prices, petrol prices are going up, and now food prices are coming after. But I think there is a great underlying travel need, and people want sand between their toes this summer. So if the situation in Ukraine calms down, I think a lot of people will travel anyway – even if they have to pay more, he says.
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