Flying Through Fuel Challenges: Amidst the geopolitical turbulence in the Middle East, surging oil prices are putting the squeeze on airlines, particularly in terms of jet fuel costs. After the Hamas attack in Israel on Oct. 7, Brent crude oil nearly reached $94 per barrel, though it has since receded to approximately $84.
As of Thursday, spot Northwest European jet fuel prices stood at $914 per metric ton, roughly $116 per barrel. This is a noticeable decline from the peak of over $128 per barrel witnessed in the week following the aforementioned attack and the record high of around $186 in June 2022 following Russia’s invasion of Ukraine.
Airlines often turn to futures and options to hedge against such price fluctuations, also factoring in changes in the U.S. dollar, the currency in which jet fuel is priced.
Here’s an overview of how some major European airlines are approaching hedging for the year 2024:
AIR FRANCE-KLM (AIRF.PA)
The Franco-Dutch airline’s CEO mentioned on Oct. 27 that they were “quite sufficiently hedged” for the next six months. For the fourth quarter of 2023, they’ve hedged 70% of jet fuel consumption at $129.87 per barrel and 64% for the first quarter of 2024 at $123.80 per barrel.
IAG (ICAG.L)
The owner of British Airways and Iberia disclosed in July that it was 58% hedged for the first quarter, 49% for the second, 39% for the third, and 32% for the fourth quarter of 2024. Accounting for currency risk, the group was hedged at $103.16 per barrel for the first and third quarters, and at $102.53 for the second and fourth quarters.
LUFTHANSA (LHAG.DE)
Lufthansa claimed its “high hedge ratio” provided solid protection against rising oil prices, with 74% of expected 2024 fuel needs hedged at an average price of $120.38 per barrel.
RYANAIR (RYA.I)
The Irish carrier secured about 85% of its fuel requirements for 2024 at $89 per barrel, and over 50% for 2025 at $79 per barrel, according to their statement.
SAS (SAS.ST)
The largest Scandinavian carrier stated that it hadn’t hedged any of its fuel consumption for the next year. However, it had hedged 41% of the U.S. dollars expected to be used in the next 12 months by the end of October.
These strategies provide insights into how airlines are navigating the complex landscape of fuel costs amidst fluctuating oil prices and geopolitical uncertainties in the region.
Our Reader’s Queries
What are the challenges of sustainable aviation fuel?
One of the biggest hurdles faced by SAFs is that, much like traditional fossil fuels, they require combustion in order to power an aircraft. This means that carbon dioxide is inevitably released during the ignition process. In order to truly maximize the benefits of SAFs, it is crucial to focus on reducing carbon emissions throughout the entire supply chain and life cycle of the fuel. This requires a comprehensive approach that addresses all stages of the process.
What will happen to planes when oil runs out?
The future of aviation fuel lies in either liquid hydrogen or biofuels. These two options are the only viable alternatives to traditional jet fuel. While the transition may take some time, it is clear that the industry is moving towards more sustainable and eco-friendly options. Liquid hydrogen and biofuels offer a promising solution to the environmental challenges faced by the aviation industry. As we continue to explore and develop these alternatives, we can look forward to a cleaner and more sustainable future for air travel.
How bad is a fuel imbalance on a plane?
Aircraft handling can be greatly impacted by a fuel imbalance, resulting in uneven lateral balance and asymmetric handling. This can cause the aircraft to roll or yaw to one side, requiring increased control inputs from the pilot. It’s important to address any fuel imbalances to ensure safe and stable flight.
What is fuel starvation in aviation?
Fuel starvation happens when the engine(s) lose fuel supply, even if there is still fuel available on the aircraft. This usually occurs due to fuel mismanagement, such as selecting the wrong or empty fuel tank during flight. It’s important to avoid fuel starvation incidents as they can lead to dangerous situations in the air.