Air tickets may become more expensive — thanks to the lack of refining capacity and the financial state of airlines, said William Walsh, the director-general of the International Air Transport Association (IATA).
The decline in refining capacity during the pandemic, and higher jet fuel prices caused by the increase in demand for fuel are “of concern” to the airline industry, Walsh told CNBC’s Hadley Gamble on Wednesday.
U.S. refining capacity dropped by 5.4% in 2022 since it peaked in 2019 — the lowest in eight years. The dip came in the wake of refinery closures and conversions to produce more renewable fuels.
Walsh added that while consumers are paying higher ticket prices, airlines are not necessarily making a profit.
“And given the financial state of many airlines ... It’s not that airlines are making money, [they] are just passing on a cost that they can’t absorb themselves, and that they can’t avoid,” he said.
Airline ticket prices have spiked by 25% in the past year — the biggest annual jump since 1989. In April alone, airfares surged 18.6%, according to the Bureau of Labor Statistics.
Russia-Ukraine war
But another factor could contribute to even higher ticket prices — Russia’s announcement of a military mobilization, said Qatar Airways CEO Akbar Al Baker.
Russian President Vladimir Putin on Wednesday announced a partial military mobilization in Russia, placing the country’s people and economy on a wartime footing as Moscow’s invasion of Ukraine continues.
Al Baker told CNBC that China’s Covid policies are the “smallest of [his] worries,” and that the airlines’ greatest concern is the escalation of the Russia-Ukraine war.
“For me, the biggest worry is the conflict spreading, which [will then] fuel inflation, putting more pressure on the supply chain,” he added. “The net result will be less passengers in my aeroplane.”
“It also worries me … the [instability] of the oil price, which I don’t want to pass to the passengers, which will then discourage them from travelling.”
Oil prices jumped by more than 2% after Putin’s announcement, following concerns of an escalation of the war in Ukraine and squeezing oil and gas supplies. Nevertheless, Al Baker maintained that Qatar will continue flying to Russia as long as it is operationally safe to do so.
“We will continue to fly to Russia, we will continue to serve the people ... We are not a political institution. We are an industry that serves the common people.”
Hopes for affordable sustainable fuel
Al Baker called for more investments in alternative fuel, and that Qatar Airlines is “ready to invest in sustainable aviation fuel” on the condition that it is “reasonably priced.”
“I have no issue [paying] a bit more, but they cannot pay four or five times the price of a normal F-gas.” F-gas, also known as fluorinated gases are man-made gases applied in various industrial uses.
“If we are pushed to do that, you as a passenger are going to pay for it,” he said.
Walsh echoed his hopes of seeing more investment in the production of sustainable aviation fuel rather than traditional refineries, citing environmental concerns.
Last year, IATA set a goal for the global air transport industry to achieve net-zero carbon emissions by 2050.
“Sustainable aviation fuels do represent the best option that the industry has to achieve our target of net zero by 2050.”
Source: CNBC
Image source: ARGS
