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

Securities Daily Reporter Liang Aonan

Recently, due to geopolitical conflicts, global oil supplies have faced disruptions, causing significant fluctuations in international oil prices. The cost pressures are being passed down to the downstream airline industry.

“Jet fuel procurement costs, as the airline industry’s primary variable expense, account for a large proportion of total operating costs. Rising oil prices will directly increase jet fuel purchase expenses, squeezing 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, the difficulty in cost control continues to grow.

A relevant person 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 that amount. This is because the refining process for 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 the surge in fuel costs, many airlines have taken action. On March 10, Hong Kong Airlines announced that starting March 12, it would raise the fuel surcharge on all routes, with a maximum single-trip increase of 150 Hong Kong dollars. 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, South 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 Airways announced a 10% to 15% fare increase to cover the sharply rising fuel costs. The airline stated that if oil prices continue to climb, there is room to further raise the fuel surcharge.

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 yuan for routes under 800 km and 20 yuan 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 airline operating costs. However, the fuel surcharge is adjusted by relevant government departments based on mechanisms, and airlines cannot decide independently. More importantly, airlines need to 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.

In Guo Jia’s view, 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 cost pressures on airlines. Overall, rising oil prices pose multiple challenges for airlines, affecting costs, pricing, and market demand.