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Oil sanctions on Russia are pushing up fuel costs and airfares; US airlines have begun to cut back the number of flights they offer; Qantas has warned of fare increases – but Australian Federation of Travel Agents (AFTA) chair, Tom Manwaring, is playing down the effect on travel.
The leap in fuel prices follows the US and Britain banning oil imports from Russia over Russia’s invasion of Ukraine. Russia is the world’s biggest exporter of crude oil and oil products combined.
Consequently, prices for all oil products, including jet fuel, have soared. If Russian President Vladimir Putin cut off the supply of oil and gas to Western Europe – something no longer out of the question, given the scale of sanctions directed against Russia and the steady escalation of hostilities – oil prices would go through the roof.
Not only do oil price rises push up the cost of flying or driving, they boost inflation. The cost of fuel, particularly diesel in Australia, affects almost everything that is grown or produced. Consumers will confront higher prices on supermarket shelves while the purchasing power of the average pay packet declines.
Already, drivers in some parts of Australia are paying well over $2 a litre for petrol. According to FuelPrice Australia, the average price for a litre of unleaded 91 in Sydney is now $2.15.
Qantas chief executive, Alan Joyce, has warned that the crude oil price increases will drive up average airfares by 7%, the Guardian reported. Others reckon the price rises could be higher. Fuel makes up 30% to 40% of the operating costs of most airlines.
In the short term, the fuel crisis could act in travel’s favour by bringing forward bookings. “Book now before prices rise.”
AFTA chair Tom Manwaring says ticket prices are “coming off a very low base”.
“Airfares were already very, very cheap. So now they’ll just be very cheap,” he reminded Guardian Australia.
Airlines have been clobbered by the pandemic. Manwaring says international carriers are operating at low capacity and as more seats become available in coming months, competition between airlines will “help level prices back out”.
The price of northwest European jet fuel in the spot market soared by 85% in less than two weeks – from 25 February to 9 March (last Wednesday) when it reached US$1649 a tonne, though it fell back to US$1007 by Friday 11 March, Reuters reported.
Some airlines, including Air New Zealand, are protected, at least in part, by oil hedges. Qantas has hedged 90% of its fuel needs until the end of June, which chief executive Alan Joyce says will “give us time to react to that higher fuel price”. Qantas has also hedged half of its fuel for the following quarter.
Other airlines, including Malaysia Airlines and AirAsia, are turning to fuel surcharges.
Reuters points out that many carriers are being squeezed by having to fly longer routes to avoid Russian and Ukrainian airspace.
In the US, Alaska Air will cut back flights by as much as 5% in the first half of this year citing “the sharp rise in fuel costs”. Low-cost carrier Allegiant Airlines will slash flights by somewhere between 5% and 10% in the second quarter, the New York Post said.
Allegiant’s financial chief told Bloomberg News the company planned to scale back its flight schedule primarily during times of weaker demand.

In Australia, meanwhile, Federal Treasurer Josh Frydenberg has warned Australians to brace for higher interest rates, the Sydney Morning Herald reported.
It will be the first official interest rate rise in almost 12 years.
Last week, Frydenberg said that “piece by piece, Russia is being removed from the global economy and Putin’s plug is being pulled from its socket”.
He continued: “But we must not be naive about the costs these necessary actions will also impose on the West. For liberal and free nations, this is a price that we must be willing to pay for the right to live free of fear and coercion.”
As always, some people will feel the costs more than others – those sleeping in their cars after the devastating floods on Australia’s east coast, for instance.
Just a month ago, Alan Joyce said the airline’s frequent flyer surveys showed “the intent to travel is extremely high and we’re seeing good leisure demand into the fourth quarter. We’ve also seen a sharp uptick in international ticket sales in the past few weeks.”
Let’s hope that trend holds.
 
Written by Peter Needham