Drivers are very much aware of the higher price to fill up as of late, and experts say air travellers should expect a similar sticker shock soon.
The cost of jet fuel is subject to the same forces that have caused gasoline prices to rise to their highest price in years.
A Bloomberg index of U.S. jet fuel prices shows the price of jet fuel has risen to top $4 US a gallon ($1.35 Cdn per litre) this week — more than twice what it went for as recently as December, and four times the cost prior to the pandemic.
Jet fuel is one of the biggest costs that airlines bear, so experts say that surge will affect the price that travellers pay to fly, if it hasn’t already.
“In terms of airfares, I can’t say that I’ve seen any impact yet [but] I’m sure it’s coming,” said Christine Latremoille with Uniglobe travel agency in Dorval, Que.
Latremoille said airfares have been ticking higher for a while, as 2022 was setting up to be one of the biggest years for travel on record after two years of delayed vacations during the pandemic.
Anyone who hasn’t booked a flight in a while may be in for a surprise, she said. Canadians are no doubt well aware of high inflation pushing up their cost of living, but record-setting demand for travel has pushed prices up even higher than they might otherwise be.
“The airline industry has suffered such losses over the last year and a half,” she said.
“At some point or another, they were going to recoup their losses.”
And that was before Russia’s invasion of Ukraine caused the price of oil to skyrocket. Because airlines are so vulnerable to the highly volatile oil price, they often try to limit that risk by what’s known as hedging — locking in a dependable supply of jet fuel in advance, for an agreed-upon price.
That strategy cost them in the pandemic, when demand for all the jet fuel they had purchased plummeted. “Coronavirus-driven lockdowns taught airlines why over-hedging can be dangerous,” Bloomberg Intelligence analyst Conroy Gaynor said, so many of them stopped doing it.
While it used to do it frequently, Air Canada hasn’t hedged itself on jet fuel for the past two years, company filings show, which makes the airline vulnerable to price spikes such as this one. But a spokesperson for the airline said it has no immediate plans to add new fuel surcharges, or adjust its pricing due to the conflict.
“There are a number of factors that go into airline pricing apart from fuel costs, including … competition, demand, marketing considerations and the type of traffic that a route serves,” Peter Fitzpatrick said.
“We always say ticket pricing is dynamic and that fares can change frequently, both up and down, for these and other reasons [so] one cannot assign any price movements that may occur to any one particular cause.”
A spokesperson for WestJet said it has not “made any deliberate change to our systems in response to the rising cost of fuel,” and added that it currently does not levy any fuel surcharges.
“We are of course monitoring conditions but have made no decisions at this time,” the airline said.
Re-routing around Russia
Latremoille said fuel surcharges are especially problematic in Europe, where they can be double or triple the base price.
“I expect that to go up,” she said, adding that the issue, compounded by airspace restrictions, is likely going to impact summer travel plans.
To enter the country, Canada now requires travellers to provide a rapid antigen COVID-19 test instead of a PCR test, but many travellers and experts say it might be time to drop testing requirements entirely. 1:49
Many routes from Europe and North America bound for Asia would typically fly over Russian airspace as the most efficient way around the globe. But after Russia closed its airspace, not being able to do that is adding costs in the form of excess fuel needed for less efficient routes. Finnish carrier Finnair warned of exactly that this week, with CEO Topi Manner saying virtually all of the airline’s flights to Asia are no longer feasible.
“Bypassing the Russian airspace lengthens flight times to Asia considerably and, thus, the operation of most our passenger and cargo flights to Asia is not economically sustainable or competitive,” he said.
Air Canada recently rerouted a flight to Delhi so that it would no longer fly over Russian airspace, a move that added more time in air and fuel use to a flight that was already 14 hours, Latremoille said. “I’m starting to see a lack of interest in planning anything too far ahead,” she said.
Analyst Tim James with TD Bank said in a note to clients he thinks Canadian airlines are in a good position to weather the current uncertainty because “pent-up travel demand from Canadians will allow airlines to pass through most of the higher fuel costs.”
Latremoille said that pent-up demand is unlikely to dissipate, even if travellers have to pay a bit more to scratch that itch.
“I’ve been doing this for 40 years and I’ve never seen anything like this demand,” Latremoille said.
“The constant calls … people need to just literally get away.”
