Rajan Wilcox
The global airline industry is projected to spend around US$291 billion on fuel in 2024, a US$100 billion increase compared to 2019. This massive surge in spending is due to the rise in fuel prices, which has been influenced by geopolitical factors such as the war in Ukraine and the conflict between Israel and Palestine. While fuel consumption has nearly returned to pre-pandemic levels, the cost of jet fuel has been steadily rising, impacting airlines' expenses and airfares. Despite the challenges posed by recent conflicts and the pandemic, the total number of airline passengers is expected to reach nearly five billion by the end of 2024, surpassing pre-pandemic levels.
| Characteristics | Values |
|---|---|
| Percentage of total expenses | 15-20% or 20-40% depending on price and region |
| United Airlines' expenditure on fuel in 2019 | $8.9 billion |
| United Airlines' expenditure on fuel in Q4 2023 | $3.32 billion |
| United Airlines' expenditure on fuel in 2023 | $12.651 billion |
| United Airlines' expenditure on fuel in Q1 2024 | $2.9 billion |
| IndiGo's fuel costs in Q4 FY24 | INR59.7 billion ($713.8 million) |
| IndiGo's fuel costs in Q4 FY23 | INR56.1 billion ($670.8 million) |
| Singapore Airlines' expenditure on fuel in Q2 2021 | SG$1.38 billion ($987 million) |
| Singapore Airlines' expenditure on fuel in FY2023/2024 | $5 billion |
| Average aircraft fuel price per gallon in Q3 2023 | $2.88 |
| Average crude oil price in 2023 | $82.5 per barrel |
| Average fuel price for a flight between JFK and LHR | $27,270 |
| Average fuel price for a flight between JFK and LAX | $10,757 |
| Fuel usage by all airlines worldwide in 2022 | 77 billion gallons |
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What You'll Learn
Fuel costs as a proportion of airline expenses
Fuel costs are a significant expense for airlines, accounting for a large percentage of their total expenses. The proportion of expenditure on fuel varies depending on price and region, ranging from 15 to 40% of total expenses. For example, United Airlines spent $8.9 billion on aircraft fuel in 2019, approximately 23% of its total expenses that year. IndiGo, a low-cost carrier, saw its fuel costs rise by 6.5% in Q4 FY24 to $713.8 million, while Singapore Airlines spent $987 million on fuel in Q2 of 2021, representing 28.8% of its half-year expenditure.
Fuel costs for airlines are subject to market fluctuations and are influenced by global politics, aircraft type, sector length, and weather conditions. Airlines have limited control over fuel costs and often use fuel hedging to protect themselves against market volatility. However, this tactic can also trap them in high-price cycles, as seen during the pandemic. The price of jet fuel has a direct impact on ticket prices, and airlines pass on some of the fuel-related costs to consumers through fuel surcharges.
The aviation industry's fuel usage and spending plummeted during the pandemic but rebounded in 2022. Fuel use worldwide rose to 77 billion gallons in 2022, a 48% increase from 2020 but still below pre-pandemic levels. Fuel prices have also increased, with a similar fuel volume in 2023 costing 43% more than in 2019. These price increases have been attributed to global conflicts, such as the war in Ukraine, which drove up prices of petroleum and natural gas.
While aircraft do not typically fill their tanks to maximum capacity due to efficiency concerns, the decision on fuel load depends on the airline's strategy. Some airlines opt for enough fuel for a round trip, while others refuel on the return journey. Fuel prices for airlines are relatively stable compared to gas stations, as there is less price competition among the select group of suppliers serving the aviation industry.
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Fluctuating fuel prices
Fuel costs are one of the largest expenses for airlines, accounting for between 15 and 40% of their total expenses. The price of fuel is subject to market fluctuations, influenced by global politics and other factors such as aircraft type, sector length, and weather. This volatility in fuel prices has a direct impact on the price of airline tickets, as airlines pass on some of the fuel-related costs to consumers through fuel surcharges.
For example, United Airlines spent $8.9 billion on aircraft fuel in 2019, which accounted for approximately 23% of its total expenses. In 2023, the airline's fuel bill was $3.32 billion, which was on par with the cost in 2022. However, the full-year expense of fuel in 2023 was $12.651 billion, a 3.5% decrease from the previous year. IndiGo, a low-cost carrier, saw its fuel costs rise by 6.5% in Q4 FY24, while Singapore Airlines spent $987 million on fuel in Q2 of 2021, representing 28.8% of its half-year expenditure.
The aviation industry's fuel usage and spending plummeted during the pandemic, but rebounded in 2022. Fuel prices, however, remained high. According to the International Air Transport Association (IATA), fuel prices in 2023 were 43% higher than in 2019, and they are forecast to increase further in 2024. These increases have been attributed to global conflicts, such as the war between Russia and Ukraine, which drove up prices of commodities linked to petroleum and natural gas.
Airlines have different strategies for fueling up, with some opting for enough fuel for a round trip while others choose to refuel only on the return journey. Refueling on the return journey can be complex and delay turnarounds, especially for a full tank top-up. Additionally, fuel prices can vary between airports, with shorter flights sometimes opting to refuel at their home airport where fuel may be cheaper.
While the price of jet fuel has a significant impact on airline ticket prices, it is important to note that other factors, such as labor costs and sustainability initiatives, also play a role in the overall cost of air travel.
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Fuel surcharges passed on to customers
Fuel is a major expense for airlines, accounting for 15 to 20% of their total expenses, or even as much as 40% depending on price and region. As a result, airlines are incentivised to pass on these costs to their customers. The price of jet fuel directly impacts the price of an airline ticket.
Some airlines, such as United Airlines, Singapore Airlines, and Avianca, do not pass on fuel surcharges to their customers. Singapore Airlines, for example, does not charge fuel surcharges on its own flights, nor does it pass on fuel surcharges from some of its partners, including United Airlines. Avianca's LifeMiles program also does not pass on fuel surcharges.
However, many airlines do pass on fuel surcharges to their customers, especially for award tickets. Iberia, for instance, passes on $850 in one-way fuel surcharges and $1,700 in round-trip fuel surcharges for business class flights between the U.S. and Spain. For economy, the fuel surcharges are $160 one-way and $320 round-trip. Scandinavian Airlines (SAS) also passes on fuel surcharges for business class and economy tickets, charging $1,700 and $320 for round-trip flights between the U.S. and Europe, respectively. British Airways, Emirates, and Lufthansa are also known for high fuel charges.
Fuel surcharges can make up a majority of the fare. For example, a $572 round-trip ticket from New York to London on JetBlue has a base fare of $0.50 per direction, while the carrier-imposed surcharges are $320. These surcharges are particularly common when redeeming miles and points, as some programs and airlines do pass on these surcharges to consumers.
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Fuel usage and spending during the pandemic
Fuel is a major expense for airlines, accounting for 15 to 20% of their total expenses, according to the US Department of Transportation. Airlines spent $3 billion on fuel in July 2019, a 4% decrease from 2018. However, the pandemic caused a significant drop in the aviation industry's revenues, fuel usage, and spending. During the pandemic, fuel prices dropped below $0 a barrel, causing a collapse in the fossil fuel industry.
Despite the decrease in fuel prices during the pandemic, airlines were trapped in high-price cycles due to fuel hedging, a tactic used to protect against market fluctuations. As a result, airlines were unable to take advantage of the low fuel prices. In 2022, fuel usage rebounded, with fuel use for all airlines worldwide reaching 77 billion gallons, a 48% increase from 2020. However, fuel prices continued to rise, and it is predicted that fuel prices in 2024 will be 53% higher than in 2019.
The increase in fuel prices is attributed to several factors, including the war in Ukraine and the conflict between Israel and Palestine, which have driven up prices of commodities linked to petroleum and natural gas. Additionally, the cost of fuel for airlines is influenced by various factors such as aircraft type, sector length, and weather conditions. Airlines have different strategies for fueling, with some opting for enough fuel for a round trip while others choose to refuel on the return journey.
The impact of fuel prices on airlines is significant, as it directly affects the price of airline tickets. With rising fuel costs, passengers can expect higher fares. Furthermore, fuel is an expense that airlines have little control over and is subject to constant market fluctuations, making it a challenging aspect of the industry.
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Strategies for refuelling
Fuel is a major expense for airlines, accounting for 15 to 20% of their total expenses, or even as high as 40% depending on price and region. Fuel costs are subject to market fluctuations influenced by global politics, making it a cost that airlines have little control over.
Streamlining the Refuelling Process
Streamlining the steps for refuelling can enhance operational efficiency and reduce costs associated with delays. This includes coordinating with fuel contractors to determine fuel needs, receiving fuel load information, and implementing efficient fuelling methods such as hydrant refuelling systems or gravity fuelling in case of an inoperative intake system.
Ground Refuelling
Ground refuelling offers reduced turnaround time, enhancing customer satisfaction and increasing overall flight frequency. It also allows for better control over safety precautions, such as grounding the aircraft to prevent static electricity buildup and potential sparks. Ground refuelling enables close monitoring of environmental conditions, helping to mitigate risks associated with flammable vapors.
Fuel Hedging
Airlines use fuel hedging to protect against market fluctuations. This tactic has yielded strong results during price increases but can trap airlines in high-price cycles during periods of lower prices, such as during the pandemic.
Optimising Fuel Load
Aircraft don't typically fill their tanks to maximum capacity due to efficiency concerns. Some airlines opt for enough fuel for a round trip, while others refuel on the return journey. Factors such as aircraft type, sector length, and weather conditions influence fuel requirements, and efficient loading can help reduce costs.
Efficient Refuelling Vehicles
At regional airports, specialised refuelling trucks, such as the Haisen Aircraft Pipeline Refuelling Truck, can efficiently service various aircraft types while ensuring fuel purity. These trucks carry between 3,000 and 5,000 gallons of fuel and are just as efficient as the underground systems at larger airports.
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Frequently asked questions
Fuel is a major expense for airlines, accounting for 15-40% of their total expenses. The exact amount spent on fuel depends on various factors, such as the type of aircraft, sector length, and weather. For example, United Airlines spent $8.9 billion on aircraft fuel in 2019, approximately 23% of its total expenses.
Aircraft don't usually fill their tanks to maximum capacity unless they are stretched to a range limit. This is because a heavier aircraft will burn more fuel, decreasing efficiency and raising costs. Airlines have different strategies for fuelling up, with some opting for enough fuel for a round trip and others choosing to refuel on the return journey.
It is challenging to calculate the exact cost of fuel per aircraft per flight due to constant fluctuations in fuel prices. However, a 2019 analysis by The Points Guy estimated the average fuel price for a flight between New York JFK Airport and London Heathrow to be $27,270.
Fuel costs are one of the largest and most variable expenses for airlines, and these costs are often passed on to consumers through ticket prices and fuel surcharges. When fuel prices increase, airlines may levy higher surcharges to offset their fuel expenses.
The pandemic caused a decrease in the aviation industry's revenues, fuel usage, and fuel spending. However, by 2022, fuel usage rebounded, and prices rose. The conflicts between Russia and Ukraine, and Israel and Palestine, have also contributed to higher fuel prices for airlines.
