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High airfares due to rising oil price may upturn projected global boom in travels

The projected rise in global air travels this year has come under serious threat by high cost of Aviation fuel, Jet A1, occasioned by high crude oil price.

It would be recalled that commercial airlines netted $34.5b which amounts to 7.6 per cent jump in aviation revenue projection for 2017.

But the rise in the oil price is putting the squeeze on airline costs and is likely to lead to a rise in airfares, industry executives said on Monday.

The oil price, which typically accounts for around 30 percent of an airline’s costs, has risen 52 percent since June 2017 to around $68 a barrel.

According to the chief executive of International Air Transport Association (IATA), Alexandre de Juniac, said he believed there was a consensus among airlines that an oil price of around $65 to $70 remained “acceptable”.

“It is not so much a competitive differentiator for an airline,” he told reporters on the sidelines of a conference ahead of the Singapore Airshow. “It puts pressure on costs and it is more a fare inflation trigger.”

However, airlines said the higher oil price was proving financially damaging because fare increases had so far failed to keep pace with the oil price rise.

“Last year, we estimated that our fuel costs rose 20 percent compared to 2016 which had a impact on our profit,” said Li Zongling, the president of China’s Okay Airways. He estimated that earnings fell by around 5 percent due to the higher oil price.