Rising oil prices are passing through to the airline industry, with several airlines announcing fare adjustments

Reporter Liang Aonan

Recently, affected by geopolitical conflicts, global oil supplies face disruptions, causing significant fluctuations in international oil prices. Cost pressures are passing on to downstream industries like aviation.

“Jet fuel procurement costs are the main variable costs in the airline industry, accounting for a large proportion of total operating costs. Rising oil prices will directly increase jet fuel expenses, squeezing airline profit margins,” said Zhu Keli, founder of the New Economy Research Institute, in an interview with Securities Daily. Some international routes require detours due to airspace adjustments, further increasing fuel consumption. Coupled with exchange rate fluctuations, cost control remains challenging.

A representative from the Asia-Pacific Airlines Association analyzed that if crude oil prices rise by 20%, the increase in airline fuel prices is often several times higher. This is because refining aviation fuel is complex and supply chains are more scarce. Additionally, airspace closures lead to more detours and longer flight times, further straining crew resources and significantly increasing operating costs.

To cope with soaring fuel costs, many airlines have taken action. On March 10, Hong Kong Airlines announced it would raise fuel surcharges on all routes starting March 12, with a maximum single-trip increase of 150 HKD. The fuel surcharge for routes from Hong Kong to mainland China increased from 185 HKD to 190 HKD; for short-haul routes from Hong Kong to Japan, Korea, Thailand, etc., it rose from 162 HKD to 212 HKD; and for long-haul routes from Hong Kong to Europe, America, and the Middle East, it increased from 589 HKD to 739 HKD.

On March 11, Thai International Airlines announced a 10% to 15% fare increase to cover sharply rising fuel costs. The airline stated that if oil prices continue to climb, there is room to further raise fuel surcharges.

Currently, airlines such as Air China, China Eastern Airlines, and China Southern Airlines are still implementing the fuel surcharge standards adjusted on January 5, which are 10 RMB for routes under 800 km and 20 RMB for routes over 800 km. The next adjustment window is set for April 5.

Guo Jia, a professor at Nanguo Business School, Guangdong University of Foreign Studies, told Securities Daily that rising oil prices directly increase operating costs for airlines. However, fuel surcharges are adjusted by relevant government departments based on mechanisms, and airlines cannot decide independently. More importantly, airlines must balance cost pressures with market demand. Raising ticket prices due to higher costs may lead some price-sensitive travelers to choose high-speed rail or other transportation modes, affecting passenger load factors and revenue.

Guo Jia believes that the price of aviation fuel is influenced not only by crude oil prices but also closely related to refining capacity. Recent geopolitical conflicts impacting refining facilities could tighten supply further, increasing airline cost pressures. Overall, rising oil prices pose multiple challenges for airlines, affecting costs, pricing, and market demand.

(Edited by Wen Jing)

Keywords: Oil prices Airfare