JetBlue Airways aircraft taxis alongside American Airlines, Delta Air Lines and Alaska Airlines flights at Reagan National Airport (DCA) in Arlington, Virginia, on Monday, April 6, 2020.
Anndra Harrer | Bloomberg | Getty Images
The accumulation of oil is taking jet fuel along the way, setting another headache for airlines that are still struggling from depressed travel demand in Covid’s pandemic.
U.S. jet fuel prices reached a near 13-month high of $ 1.67 gallons on Wednesday, according to S&P Global Platts data, a climb driven by arctic explosions and winter storms that disrupted oil production, refining and transportation. Millions were left in the cold and dark of Texas, which relies heavily on natural gas for heat and power.
“We expected fuel at these levels by the second half of the year,” said Savanthi Syth, airline analyst Raymond James. More expensive fuels can make it harder for airlines to stop burning money, a goal that has already been postponed due to weaker-than-expected demand.
Headwind cost
Spirit Airlines CFO Scott Haralson said during an employment call on Feb. 11, higher fuel costs were among the airline’s first-quarter challenges of discounting airlines. The carrier expects fuel costs to be up 32% in this quarter from the last three months of 2020. Greg Anderson, CFO of Allegiant Air Allegiant Travel Co.’s parent, also said higher fuel costs as a headline during quarterly call February 3rd.
Jet fuel production is one of the biggest costs airlines face along with labor. Fortunately for carriers, labor costs are currently backed by billions in federal aid, helping reduce the impact of more expensive fuel, Syth said.
Jet fuel consumption declined in the past year as airlines declined sharply amid declining air travel demand. That put down prices and airline fuel bills. American Airlines, which stopped fueling in 2014 when oil prices plummeted, said in a securities filing this week that its $ 3.4 billion fuel bill last year made up just 12 % of its costs, down from a 22% share in 2019 as the price fell and its consumption fell by half.
“Based on our expectations of the 2021 mainline and regional fuel consumption, we estimate that a one per cent gallon increase in the price of aviation fuel would increase our 2021 annual fuel cost by $ 38 million, “the company said in its annual file.
Repeal of application
Jet fuel consumption in the U.S. so far this year is still off nearly a third from last year, according to a report from Citi this week.
Supply outages were enough to drive up prices, but to sustain their steep climb demand travel demand must also rebound, said Lenny Rodriguez, S&P Global Platts analyst. Transport Security Administration daily airport screens have surpassed 810,000 per day this month compared to 2.1 million in the same period last year.
That weak demand makes jet fuel refining compared to other oil products less attractive.
“This is the laggard for all oil products,” Rodriguez said.