Jet fuel surge hits airlines, carriers raise surcharges

 Jet fuel prices, previously hovering between US$85-US$90 per barrel before the Middle East conflict, have surged above US$100 per barrel.

The Middle East conflict has significantly disrupted airport operations globally, including in Dubai, with thousands of flights cancelled and airspace in the region closed after the US and Israel launched strikes on Iran on Feb 28. (Facebook pic)

KUALA LUMPUR:

 Airlines in Asia are reviewing fares and operational plans as the impact from rising jet fuel prices linked to escalating conflict in the Middle East begin to ripple across the aviation industry, with some carriers already introducing fuel surcharge adjustments.

The Middle East conflict has significantly disrupted airport operations globally, with thousands of flights cancelled and airspace in the region closed after the US and Israel launched strikes on Iran on Feb 28.

On March 6, the International Air Transport Association (IATA) said that the Strait of Hormuz, which normally carries around 20% of the world’s oil supply, has become effectively impassable – creating immediate implications for refined products such as jet fuel, especially for regions heavily dependent on Persian Gulf supply.

Jet fuel prices, previously hovering between US$85 per barrel and US$90 per barrel (US$1=RM3.94) before the conflict, have surged above US$100 per barrel in recent days.

In Malaysia, Batik Air Malaysia confirmed that it recently issued a notice to its travel partners on adjustments to fuel surcharges for both domestic and international routes, reflecting mounting cost pressures faced by airlines.

The revised fuel surcharge will take effect from March 11 for most routes, while adjustments for flights involving Hong Kong, South Korea, and Japan will begin on March 25.

For Firefly, a subsidiary of Malaysia Aviation Group Bhd, the adjustment will be implemented in two stages. Phase 1, effective from March 11, is applicable to all countries except the Philippines; and Phase 2, effective from March 25, is applicable to the Philippines.

Similarly, Malaysia Airlines said it would implement the adjustments in two stages. However, it has not confirmed any adjustment when contacted by Bernama.

Several airlines across the wider Asia-Pacific region have also begun increasing fares as jet fuel costs rise.

Air New Zealand has raised prices for fares on all domestic routes, short-haul international services, and long-haul flights.

Vietnam Airlines has reportedly urged local authorities to remove the environmental tax on jet fuel, as operating costs have risen by 60-70% due to surging fuel prices.

Meanwhile, Hong Kong Airlines will also raise fuel charges from March 12 across a few routes.

Aviation industry expert Harridon Suffian noted that jet fuel constitutes between 20% and 30% of an airline’s operating expenses, and historical data shows that fluctuations in fuel prices could sharply erode profit margins.

He said airlines might be forced to raise ticket prices by 5-10%, or more, if carriers fail to optimise operational costs and fuel management strategies.

Harridon pointed out that historical data indicates airlines would be in a favourable financial position if operational costs were shared or transferred to passengers, but this would deter or deflate demand, and revenues would fall sharply.

“Thus, it is imperative for airlines to calculate the financial inflection point to balance the degree of increasing flight ticket prices and the loss that would be incurred if ticket prices are raised,” he said. - FMT