The oil price is throwing new gravel into the machinery of the aviation industry's recovery after the pandemic's iron bath.
Both SAS and Norwegian completely lack insurance, hedges, against galloping fuel costs.
”SAS will need to raise ticket prices if the increases in fuel costs are to be covered,” says aviation analyst Jacob Pedersen.
The price of jet fuel has skyrocketed following Russia's invasion of Ukraine. Although the price of Brent crude has fallen to around $100 a barrel after last week's record high, fuel prices are still well above pre-pandemic levels.
Fuel price hikes put great pressure on SAS SAS -0.54% results, if SAS is to avoid a large billion-sek loss, the company will need to raise ticket prices, writes Sydbank's airline analyst Jacob Pedersen in a new analysis. According to him, this will require an average price increase of over 10 percent compared to 2019 prices, to compensate for fuel price increases that have cost the company between 3-3.5 billion kronor extra.
Under normal circumstances, SAS hedges, i.e. insures, a portion of the expected fuel consumption.
”"When the cost increase is so sharp, it is because SAS has not secured fuel price purchases - partly due to the uncertainty surrounding the increase in traffic. This leaves SAS with a larger additional bill than its competitors, many of whom have covered part of the fuel consumption," says Jacob Pedersen.
SAS has a temporary fuel hedge policy in 2022, where the airline currently has no hedges in place at all. The reason is the uncertain market situation, says SAS's IR manager Louise Bergström.
”Ticket prices are set dynamically based on demand and supply and are not directly affected by current fuel prices,” says Louise Bergström.
She points out that SAS does not have a specific fuel surcharge, but that it is baked into a fee that also reflects things like takeoff and landing fees and environmental fees. Currently, SAS has not adjusted that fee.
For SAS, the war in Ukraine means that flights to Tokyo have been suspended until the end of April. Flights to Shanghai will continue, but will take two hours longer than usual due to a changed route.
Norwegian are not exposed to either Russia, Belarus or Ukraine. Only a few routes have previously passed through Ukrainian airspace.
”"In the short term, without me having specific figures on it, bookings to areas close to the war have decreased slightly. But overall we haven't noticed anything," says Norwegian's communications director Esben Tuman.
How is Norwegian affected by high fuel costs?
”"It is clear that it is a challenge when the cost level increases dramatically, but how it affects us remains to be seen. We do not want to speculate on whether it will affect the ticket price or the routes. The prices are very dynamic. We look closely at both costs and revenues, the ticket price is just one of several elements," says Esben Tuman, Director of Communications at Norwegian.
Source: DI.SE
