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Airlines reap the benefits as fuel prices continue to fall

On January 8, the International Air Transport Association (IATA) reported a 32.8 per cent reduction in the cost of jet fuel compared to last year. Unsurprisingly, the continuing decline of jet fuel prices has been welcomed by airlines and has seen passenger traffic reach new heights. At the end of 2015, IATA even predicted passenger numbers would double to a staggering seven billion by 2034. So, as the price of fuel continues to fall, operators are still enjoying significant financial benefits because fuel is one of their largest overheads. Thus the huge savings that operators are now experiencing allows them to offer more affordable – and attractive - services to their customers, such as lower airfares.

Ryanair is one airline that has said it plans to pass these further fuel savings onto its customers in the form of lower airfares.

Yesterday (February 1), the airline announced that it achieved Q3 profits of €103m, a 110 per cent increase on the prior year, while its traffic grew by 20 per cent. And the airline highlighted the reduction in jet fuel prices as one of the reasons that it has been able to accomplish such significant financial results.

The statement noted that fuel, which represents 40 per cent of the airline’s cost base, was down by 10 per cent per passenger.

In addition the airline said: “We have taken advantage of recent oil price weakness to extend our fuel hedges into FY18 (financial year 2018).”   

Ryanair also explained that FY17’s fuel, which is 95 per cent hedged at approximately $62bbl and €/$ is hedged at $1.17, will deliver fuel savings of c. €430m in FY17.  

But Ryanair’s financial triumph wasn’t the only headline to make waves yesterday, as news from India reported a huge 12 per cent reduction in the cost of fuel, falling to just Rs 4765.5 per kilolitre.

As a result the stock of airlines in the region, including SpiceJet and Jet Airways, rose significantly.

But as fuel prices drop at a remarkable rate, we have to ask: how much longer can the trend continue and how will it shape the future aviation market?

 

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