High flight prices are likely to continue into next year, even if the Strait of Hormuz were to open immediately, IATA Director General Willie Walsh has said.
Willie told BBC Radio 4’s Today programme this morning there was ‘no way’ airlines could absorb additional costs, given their tight margins.
He said: “The principal concern really relates to the fact that the UK does not have a lot of refining capacity for the size of the economy, and actually imports about 78% of its jet fuel requirements.
“Quite a significant amount of that, about 34%, comes from Kuwait and Kuwait has not exported anything since the war really started. So, the concern will be whether the UK can source alternate supply of refined jet fuel.”
Asked whether current lower air fares in Europe, which airlines have introduced to entice people back, are ‘short term’, Willie said: “I think it’s inevitable.
“At an industry-wide level, fuel will represent about 40% of the cost base this year – when you consider that airline margins are in the order of 3-4% at a net level there is just no way that the airlines can absorb the additional cost that they are experiencing, so ultimately the consumer will end up seeing higher fares.
“There may be instance where airlines will discount to stimulate some traffic flow, given that the flights will operate they’ll want to maximise the number of people on those flights, so you may see some tactical pricing options being used by airlines as we go through the summer period, but over time it’s inevitable that the high price of oil will be reflected in higher tickets prices.”
When asked whether higher prices would remain, even if the Strait of Hormuz were to reopen tomorrow, Willie said: “I think it’s likely to continue for some months to come yet, so even if it opened tomorrow, the disruption to the supply of crude, some damage to refining facilities, the disruption to the refined product – all of these issues will take time to resolve.
“Whichever way you look at it, I think this issue [high prices] will continue for a number of months to come and may indeed continue into next year.
Last month, Virgin Atlantic’s new Chief Executive Corneel Koster warned that higher jet fuel prices will remain, even after the end of the Middle East conflict.
He told the Financial Times the airline would ‘struggle’ to make a profit this year, even though it has added a fuel surcharge of £50 to economy tickets, £180 to premium and £360 to Upper Class.
He added that ‘no matter what happens in the Gulf going forward… some of this disruption to global energy prices will be here to stay’.
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