Airlines are feeling the increased pressure of the elevated oil price as the crack spread – the difference between the basic Brent oil price and the jet oil price – reached 50% last week. IATA’s Willie Walsh commented this week that he didn’t recall seeing levels this high ever before. “I looked back over the 10-year period up to 2019, where it averaged about 17%,” he said.
Walsh added that the IATA economists had expected the crack spread to reduce as jet fuel supply increased, however, he commented that this hadn’t happened since “the recovery in demand is stronger than the recovery in the production of jet fuel, and hence that elevated crack spread that we're witnessing”.
Airlines are returning to hedging – with some airlines opting to hedge their fuel exposure for the first time. The hope is that – even at this late stage to stabilise fuel costs via hedging – airlines are able to build in a little protection in a very volatile environment.
Walsh tempered his comments by noting the forward bookings remain strong for both domestic and international routes. “The recovery is gaining some momentum,” he said. “We've seen good traffic figures through the peak summer in the Northern Hemisphere, and domestic markets now recovering well with the increased activity in the Chinese domestic market. And we expect this now to continue into the August and September figures, given the positive trends that we're seeing in forward bookings. So I think a good story, both on the passenger and cargo side of the business, and clearly some challenges ahead, particularly with the fuel price. But a positive outlook for the industry at the moment.”