Share of fuel costs in the aviation industry 2011-2022
Fuel costs are a significant but highly variable expense for airlines worldwide, constituting 19 percent of total expenditure in 2021.
Fuel costs and profitability
Despite the practice of hedging, the cost of airline fuel greatly affects the profitability of airlines. For example, a clear correlation can be seen in 2015 between the sharp drop in oil prices and the significant increase in airline profits. Other variable operating expenses affecting airlines’ profitability include labor, aircraft maintenance, and airport usage fees.
Jet fuel
Airline fuel, otherwise known as jet fuel or aviation turbine fuel, is kerosene-based and therefore derived from petroleum. Consequently, the cost of airline fuel tracks the overall price of crude oil. However, it is common for airlines to hedge fuel purchases, meaning a constant price is agreed in advance for a set period of time. This practice can be used to create a partial buffer between the price of oil and its effect on airlines’ expenditure.Fuel costs and profitability
Despite the practice of hedging, the cost of airline fuel greatly affects the profitability of airlines. For example, a clear correlation can be seen in 2015 between the sharp drop in oil prices and the significant increase in airline profits. Other variable operating expenses affecting airlines’ profitability include labor, aircraft maintenance, and airport usage fees.
