Jet fuel margins widen from $10–$80 per barrel

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The GEnx-1B, now the preferred engine on about 65 per cent of 787 fleets worldwide. (GE)

The margins between jet fuel and Brent crude oil prices have widened from $10 per barrel last year to more than $80 in April 2022.

The analysis, cited by the ACCC on Thursday, has meant the monthly price of jet fuel reached its highest point on record.

“Jet fuel is a substantial cost item for airlines,” said the competition commission.

“Prior to the pandemic, it accounted for a little under a quarter of Qantas’ and Virgin’s total costs and about 14% of Rex’s total costs. Brent crude oil and jet fuel prices have risen in recent months due to tight supply conditions and conflict in Ukraine.

“The growing margin has been attributed to higher demand as air travel recovers at the same time that refiners in North America and Europe are instead focusing on meeting demand for diesel.”

The ACCC added these increases could well be filtering through into higher fares for customers.

“Although the cheapest available discount airfares were at a low for flights in late-April, the ACCC has observed that Rex’s airfares for post-Easter flights were $10 higher than its airfares for pre-Easter flights across many of its routes,” it said.

“This is consistent with Rex’s public statements about increasing airfares in response to rising fuel costs. Virgin and Qantas followed Rex in increasing their airfares by $10 in April 2022 on several routes, including routes where both airlines compete with Rex.

“However, it is unclear if these fare increases reflect airlines’ passing-through cost increases at that time. Jetstar’s airfares generally remained at or below pre-Easter levels for flights in late April.”

Earlier this month Qantas said it would make a further cut to its domestic capacity to help mitigate the effects of higher fuel prices and the industry’s talent shortage. However, the decrease will still mean the airline will operate at 106 per cent of pre-COVID levels for the second quarter of FY23 and 110 per cent for the third quarter.

Australian Aviation reported in June how domestic airfares appeared to be rapidly rising as airlines contend with increasing jet fuel costs and inflation.

It comes as figures compiled by IATA show global jet fuel prices have increased 6 per cent in the last month and nearly 130 per cent over the past year. Across Asia and Oceania, prices have increased 20 per cent in the last year — a far higher rise than any other region of the world.

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