SAS expects rising jet fuel prices to add around DKK 2.2 billion to its fuel bill this financial year, and an analyst says higher ticket prices and fewer departures are likely across the airline industry.
SAS commercial director Paul Verhagen told the business outlet Finans that the carrier faces an extra fuel bill of DKK 2.2 billion. The comments were reported on September 22 by DR.
According to the same reporting, SAS now expects to spend about 30 percent more on fuel this year than previously forecast. DR wrote that it sought a comment from SAS, but the airline did not respond.
The Copenhagen Post reported that the amount corresponds to SEK 3.4 billion in the airline’s current financial year. Per the same outlet, SAS said jet fuel had risen from about USD 700 per tonne before March to about USD 1,600 per tonne.
Jacob Pedersen, investment strategist at Middelfart Sparekasse, told DR that the price increases hit the entire sector. He said fuel commonly accounts for between a quarter and a third of an airline’s total costs. At the pace seen this year, that can move many carriers from solid profits into losses, he said.
Pedersen added that he does not expect the largest airlines, such as Air France-KLM and Lufthansa, to run into financial difficulty. Those companies may instead see lower earnings in the coming years, according to his assessment.
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Hedging and fuel market pressure
Airlines can protect themselves by locking in fuel prices well in advance. Reuters reported on September 3 that the largest Scandinavian carrier had none of its following 12 months of fuel consumption hedged, against a normal target of 40 to 80 percent.
DR noted that prices for several energy types, including gasoline and diesel, have risen sharply since the war between the United States and Iran began on February 28. Israel and the United States carried out a joint attack on Iran, which responded in part by closing the Strait of Hormuz. Around 20 percent of the world’s oil and liquefied natural gas normally passes through the strait.
Where airlines have not hedged, Pedersen said the remaining options are raising ticket prices or cutting departures to save fuel. He told DR that some carriers have already reduced the number of departures. Reuters reported on September 16 that some US airlines were scaling back schedules as fuel prices rose.
Pedersen expects ticket prices at some airlines to take a considerable step upward in the near term. Tickets booked now are likely to cost more than before, he said, because of the higher fuel prices.
He described a difficult winter ahead for the industry, as autumn and winter are traditionally quiet months for airlines. Until early spring, when customers begin booking summer holidays, cash levels at the carriers may be very low, he told DR.
