Industry analysts warned widespread fuel surcharges on air fares “can’t be far off” following a sharp spike in oil prices caused by Russia’s war on Ukraine.
Loganair became the first UK carrier to confirm a fuel surcharge would apply to all new bookings from Thursday, adding £3.95 to a one-way fare.
The price of benchmark Brent crude oil jumped 20% over the weekend of March 5-6 to $139 a barrel, its highest in 14 years – sending carriers’ share prices tumbling – before falling back.
But the oil price was still close to $120 on Thursday amid mixed signals from members of the Opec oil producers’ group on whether they would increase production to counter the impact of embargoes on Russian oil announced by the US and UK on Tuesday.
The jet fuel price in Europe was even higher at $147 a barrel at the end of last week, up 33% in the first week of Russia’s invasion and 106% year on year.
Monday’s spike came after the US government proposed a Russian oil embargo, although Germany rejected the idea.
A leading airline source said: “If energy prices keep escalating, it must have an impact. Fuel is such a large part of the cost of flying. Fuel surcharges can’t be far off. A lot of airlines aren’t fully hedged.”
Carriers ‘hedge’ on fuel, locking in future supplies at guaranteed prices, to provide certainty on costs. But Iata director general Willie Walsh warned in February that fuel hedging is “at an historic low” after the pandemic, saying: “It’s unlikely most airlines have significant hedging.”
A second aviation source argued: “The fuel price and what it does to the market is the top concern now. It will make some routes unviable and mean fewer passengers on others.
“The price hike will stay because the war isn’t going anywhere and there is talk of oil embargoes. We’re very concerned.”
Aviation analyst Chris Tarry agreed: “We’re going to see this fuel price rise last some time even if the fighting stops.” But he dismissed the idea that airlines would be able to pass on the cost, saying: “Putting fares up will choke off demand.”
Lufthansa warned last week it would need to raise prices. But easyJet, Ryanair and Tui all claim to be well hedged.
Ryanair chief executive Michael O’Leary insisted last month: “We’re insulated for the next 12 months against increases in fuel prices.”
Tui chief executive Fritz Joussen reported in February: “We hedged everything we sell for the [summer] season.” And easyJet chief Johan Lundgren claimed in January that easyJet was “in a better position than a lot of competitors” on hedging.
Wizz Air announced it was reversing its non-hedging policy on fuel this week.
Loganair announced the addition of a fuel surcharge to its fares on Thursday despite having locked in “the price for over 50% of its expected fuel volume for the 12 months from 1 April 2022 using financial hedging”.
The carrier said in a statement: “It is simply impossible for us to absorb this impact [of] the rise in global oil prices.
“This isn’t something that we wished to do, nor is it a step that we have taken lightly.”