Michelle Noordermeer, market development manager, Auckland International Airport, told delegates at the Expedia Group’s Partner Summit in Crowne Plaza Auckland that over the past year jet fuel prices have steadily increased and are now 53% higher than they were this time last year. ‘Whilst jet fuel prices are still 40% lower than they were over the previous peak fuel price of 2011 to 2014, the upwards trend is concerning for the airline industry given that fuel costs typically represent 25 to 40% of the cost of operating a flight. Noordermeer points out that airlines will be impacted by increased fuel prices depending on the forward fuel hedges they hold. ‘Globally many airlines are well hedged into 2019, so the impact of increasing fuel prices will be gradual. ‘Airlines that have invested in fuel efficient fleets such as the Boeing 787 and Airbus A350 will be less impacted by the fuel price rises and may therefore be prepared to absorb more of the fuel cost increases before increasing airfares. It is likely that airlines will also speed up the exit of older, less efficient aircraft from their fleets and procure next generation aircraft to replace these.’
She says that ultimately should fuel prices continue the upward trend, many airlines will move to increase airfares. ‘In the previous fuel price peak of 2011 to 2014, airlines were seen to increase long haul fares by several hundreds of dollars to counteract higher fuel prices. Airlines may also look to withdraw routes that become loss making in a high fuel cost environment, including long haul routes operated by less fuel efficient aircraft.’ She says it may be reassuring to note that during the previous fuel price peak where airfares rose accordingly, global air traffic growth was not significantly impacted. ‘At Auckland Airport, international passenger numbers have increased every year despite increases in fuel prices, although at a lesser rate.’ Noordermeer says the airport’s network modelling shows that New Zealand continues to be underserved with airline seat capacity compared to demand for travel to New Zealand.