Fuel prices are spiking currently, but the market view is that fuel prices will come down in the coming months, according to EasyJet CEO Kenton Jarvis. Jet fuel price was around £1,800 a tonne currently, but is predicted to drop to roughly £1,000 a tonne by summer, Jarvis said. However, the extent to which this predicted drop will materialize remains uncertain, as jet fuel prices have escalated to $180 a barrel, multiple reports indicate. United Airlines CEO Scott Kirby noted that jet fuel prices have more than doubled in the last three weeks.
Airlines' financial exposure varies widely due to hedging strategies. Many European airlines, including easyJet, have hedged a significant portion of their summer fuel requirements, securing lower prices, according to multiple reports. European airlines have hedged approximately 80% of their fuel requirements for this year, sources said. EasyJet is paying $700 a tonne for jet fuel due to hedging, while current spot prices have reached $1,850 a tonne, Jarvis told major media. EasyJet has not altered its hedging strategy, he added. In contrast, some carriers have put a hold on any new financial contracts following the doubling of jet fuel prices since the onset of the Iran war three weeks ago, multiple reports indicate. Ryanair group CEO Michael O'Leary said they will not do any hedging for the next three months due to current high rates. Airlines are holding off on making decisions over large purchases of jet fuel in hope that prices will fall due to a swift resolution of the Iran conflict, though the conflict's duration and its direct impact on fuel price volatility are unclear. If jet fuel prices stayed at current levels, it would mean an extra $11 billion in annual expense for United Airlines, Kirby said.
Ticket prices will start to reflect higher fuel costs by the end of summer, Jarvis predicted. Travelers should book upcoming flights soon as ticket costs will likely increase by 20% to account for rising fuel costs, according to Kirby. EasyJet CEO Kenton Jarvis has advised customers to book holidays early to avoid potential fare increases later. Any long-term impact on ticket prices depends on how long the conflict continues, Jarvis told major media. How significantly consumer demand for air travel will be affected if ticket prices rise by 20% or more is not yet known.
The war in the Middle East has started to hit flight bookings for easyJet, Jarvis said. Forward bookings for summer have started to slow for easyJet, he added. Flights to Turkey, Cyprus, and Egypt have seen the biggest drop in bookings due to proximity to the conflict, while bookings to Spain, Greece, and Portugal are holding up firmly, according to Jarvis. EasyJet might look to reallocate capacity if the war continues, he noted.
I don't think we'll do any hedging for the next three months. We would always vary a little bit if we thought there's a short-term [jump] - clearly nobody's doing any hedging now with these kind of rates.
United Airlines CEO Scott Kirby warned some airlines might not survive if oil prices stay high, citing a forecast of $175 per barrel. Budget airlines could be hit especially hard by rising fuel prices due to thin profit margins and reliance on high customer volume, according to University of Central Florida associate dean Alan Fyall. The specific financial risk exposure for airlines that have paused hedging amid high fuel prices is uncertain.
Geopolitical risks add to fuel supply concerns. Approximately 40% of the world's jet fuel passes through the Strait of Hormuz, multiple reports indicate. Ryanair's Michael O'Leary warned that sustained closure of the Strait of Hormuz could lead to elevated oil prices and higher airfares. Lufthansa Group CEO Carsten Spohr suggested that other global economic sectors would experience fuel shortages before the aviation industry, which uses a single-digit proportion of the world's fuel. How significantly flight cancellations might occur if fuel shortages worsen, despite downplayed risks by some airline CEOs, remains to be seen. EasyJet's Jarvis and Ryanair's Michael O'Leary have downplayed the risk of aviation fuel shortages leading to flight cancellations, according to multiple reports.
Despite challenges, positive demand indicators persist. Demand for air travel remains the strongest ever seen for United Airlines, with the last 10 weeks being the 10 biggest booked revenue weeks in its history, Kirby said. EasyJet has reopened a base at Newcastle airport with three stationed aircraft, bringing 140 jobs and supporting over 1,000 new jobs in the wider north-east, and will fly up to 800,000 holidaymakers out of Newcastle this summer, Jarvis told major media.
On company policies, EasyJet does not operate flights where the train journey is two-and-a-half hours or less, according to EasyJet chief commercial officer Sophie Dekkers.