Will oil price rally mean even higher air fares?

Airline passengers in Europe face the prospect of higher ticket prices following a rally in the price of oil which has threatened carriers’ booming profits. Crude oil has risen to $95 per barrel this week, its highest levels of the year, following production and export cuts by Saudi Arabia and Russia. The rise in prices has triggered a wave of profit warnings from US airlines and a fall in share prices on both sides of the Atlantic, even as the industry completes a strong summer of flying which has seen many carriers report record profits. Air fares have already risen sharply this year, as carriers cash in on high demand for travel at a time of constrained supply of aircraft, following retirements during the pandemic and supply chain shortages. Topi Manner, the CE of Finnair, said he expected ticket prices to rise further in response to airlines facing historically “very high levels” of fuel costs. “In a high fuel environment fares obviously would need to reflect that . . . short term volatility points towards increasing fares,” he said. Andrew Lobbenberg, aviation analyst at Barclays, also said he expected ticket prices to rise in Europe as airlines trim their flying schedules in response to rising costs. To make matters worse, airlines are paying a significant premium for jet fuel, which has risen to $130 per barrel. Francesco Di Salvo, an executive at S&P Global Platts, a commodity price reporting agency, said jet fuel prices have rallied because of strong demand for travel and a “structural deficit of jet fuel” in Europe amid OPEC cuts, sanctions on Russia and high demand for other refined products, including diesel.<br/>