Future of Travel TFI

Strategy development and forecasting in aviation, travel and tourism

Future of Travel TFI

Economic

Jet fuel prices have had a critical influence on airline and route decisions. The rapid rise in prices during 2008 resulted in airlines retiring older less fuel efficient aircraft faster than originally planned. Combined with slower than anticipated deliveries of new aircraft, this slowed overall capacity growth and may have saved airlines from even larger economic problems during the Global Financial Crisis.

Crude oil prices (Brent) reached a peak of almost USD133 a barrel in July 2008, before falling to a low of USD40 by the end of that year. Prices then again edged higher, with a period of rapid increase during 2010/11, to reach USD125 a barrel in March 2012.

Whilst oil prices have levelled out they have done so at a high level and still impact on airline costs and profitability. The 2013 average price of crude oil (Brent) at USD109 a barrel was only slightly below the historically high levels of the previous two years (and was still 12% up on the average annual peak recorded in 2008). However with prices falling to USD62 in December 2014, the lowest monthly price since May 2009, the average for 2014 fell to just over USD99 a barrel.

Crude Oil Prices (Brent): Average Annual Price (USD) 2002 to 2014

Source: US Energy Information Administration (EIA).
Source: US Energy Information Administration (EIA).

The following chart shows the monthly average Brent crude oil price along with jet fuel prices and the difference between the two, the jet fuel margin, from January 2008 to December 2014.

Singapore Jet Fuel and Crude Oil Prices January 2008 to December 2014, USD per Barrel

  Source: TFI based on U.S. Energy Information Administration.

Source: TFI based on U.S. Energy Information Administration.

The situation at the end of 2014 was one of a weakening in the outlooks for global economic growth and so for oil demand growth. At the same time OPEC is maintaining its current crude oil production target and there is continued growth in US tight oil production. The US Energy Information Administration expects global oil inventories to continue to build in 2015, keeping downward pressure on oil prices. The forecast Brent crude oil price has been reduced to USD58 per barrel for 2015, the lowest price since 2005, before increasing to USD75 a barrel in 2016.

However movements in oil prices are highly uncertain and remain a significant risk factor in aviation planning.