Following a sharp rise in the cost of fuel, Emirates has been evaluating its costs. The airline, based in the United Arab Emirates has seen the cost of fuel rise by 42% in the past 12 months. In fact, just 18 months ago a barrel of fuel cost $30, while now that figure sits at around $80. While the increase in fuel prices is being particularly felt by airlines, the problem is affecting everybody from motorists to homeowners.
Annual Fuel Bill $10bn
With the cost of fuel increasing, so has an airline’s operating cost. This has particularly hit Emirates, as the airline didn’t implement a hedging program. Instead, the airline buys fuel at market rate. While this means that if the price of fuel goes down, the airline pays lower costs. It also means that should the cost increase as is the case, then the airline pays the higher rate.
While this rise is affecting every airline, it will hit emirates particularly bad. The airline only operates B777 and A380 aircraft. Both of these are long-haul aircraft. This means that even when flying relatively short flights, the airline is using a vast quantity of fuel. Especially when the A380 is used with its four engines.
Tim Clark, Emirates President, told Air Transport World “Remember, 18 months ago [the cost of fuel] was down to $30 [per barrel]. Now it has more than doubled. It is hitting us quite badly, but we are managing it.”
Cost Passed To Passengers
The reality is that the increase in fuel prices is passed on to passengers. This is especially true with the low-cost carriers. This is due to the fact that fares are so cheap so they keep operating costs as low as possible. With the larger carriers, the effect of the rising cost of fuel is less pronounced. This is as the airline is able to absorb this extra cost from their profits within reason. Unfortunately, as is the case with Emirates, the cost of fuel has risen so much that this is no longer reasonable.
Tim Clark went on to comment “Over the past five years, the airline industry has been [keeping costs down] and becoming far more efficient, but was suddenly hit by a 42% increase in fuel prices”. He added, “We will manage [rising fuel prices] during the next six to nine months; we will hopefully stabilize this situation”.
It’s entirely uncertain as to what the cost fuel will do from one day until the other. It could continue to rise, or dramatically drop. One thing is certain, however, If fuel prices continue to rise, airfares will start to rise in response. This effect is already being felt across the industry, however, it will only get greater.
Do you think fuel prices will continue to rise? Are you happy with fare increases due to this? Let us know below!