Airlines pay their biggest ever premium for jet fuel

Airlines are paying the biggest ever premium for jet fuel, putting pressure on their balance sheets and driving up ticket prices for passengers. Jet fuel was 50% higher than Brent crude oil at the start of this month, with airlines paying more than $140 a barrel for fuel even as global oil prices fell towards $90, according to the IATA. “This is at levels I do not recall ever seeing before,” said Willie Walsh, the former boss of British Airways who now runs Iata. “We had expected this spread to reduce as more jet fuel supply became available, but clearly the recovery in demand is stronger than the recovery in production of jet fuel,” he added. The price premium for jet fuel over crude oil averaged 17% between 2009 and 2019, Walsh said. It had risen as high as 60% this year, which had “continued to put pressure on airline costs base”, Walsh said. Russia was among the world’s largest exporters of oil “distillates”, which include diesel and kerosene jet fuel. Europe was already a big distillate importer even before Russia’s invasion of Ukraine changed the dynamics of energy markets, while several refineries in Europe closed during the pandemic. The resulting supply crunch and sharp rise in prices have put further pressure on airlines’ fragile balance sheets: fuel typically accounts for between 20 and 25 per cent of their operating costs. Walsh said the high cost of fuel “ultimately gets reflected in ticket prices”, echoing the sentiments of Ryanair CE Michael O’Leary, who has warned ticket prices are likely to rise for years. Chloe Lemarie, an analyst at Jefferies, said airlines had responded to rising fuel prices by turning to newer and more fuel efficient aircraft, while keeping older jets in storage. “This is a way in which airlines have been able to limit the fuel intensity of their operations,” she said.<br/>