Jet fuel prices have had a critical influence on airline and route decisions over the past five years. Prices, which fell from a peak of US$166.48 per barrel in July 2008 to a low of US$52.78 by February 2009, have been again increasing rapidly. Unrest across Egypt, Yemen, Bahrain, Jordan, Syria and Libya has been a contributing factor to this increase.
The price of crude oil at US$123.26 per barrel in April 2011 was just 7% below its previous high of US$132.72 reached in July 2008. While oil prices fell during May 2011, the price per barrel of US$114.99 was still more than double that of two years earlier.
The rapid rise in prices during 2008 and again recently is shown below.
Singapore Jet Fuel and Crude Oil Prices, USD per Barrel
Source: TFI based on U.S. Energy Information Administration
One of the first airline responses to the periods of high oil prices has been to implement a programme of capacity rationalisation. Airlines have retired older aircraft types and added newer fuel efficient aircraft types. This process is continuing.
In a further response airlines have announced a series of increases in fuel surcharges, along with increases in fares and ancillary charges.
The US Energy Information Administration (EIA) expects oil markets to continue to tighten over the next two years given expected robust growth in world oil demand and slow growth in supply from non-OPEC countries. The EIA is forecasting a 34% increase in the average annual price of West Texas Intermediate (WTI) crude oil, up from US$79.40 in 2010 to US$106.38 in 2011, followed by a further 6.7% increase in 2012.
IATA in its June 2011 Industry Outlook has increased its crude oil prices (Brent) forecast for 2011 to US$110 per barrel, a 39% increase over the 2010 average price.
High oil prices pose two types of risk:
- Risk specific to the airline sector through the impact of increased costs and fares.
- A generalised risk resulting from the general economic impact of higher oil prices. The general impact would be to slow economic recovery in developed countries and trim growth rates for the emerging economies.
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