Fuel is the most relevant component of every airline’s cost structure. Therefore, airline managers put much effort into designing strategies to keep it down. However, fuel cost is highly influenced by external aspects that elude airlines’ control. Wars, for instance, often negatively impact jet fuel prices, as became evident with the breaking out of the Russian-Ukranian conflict. However, the US aviation market witnessed a reduction in jet fuel costs in December of 2022. Let’s have a look at this trend.
5.3% reduction in fuel cost per gallon in December 2022
Airlines are intrinsically complex entities to manage. Among the numerous challenges faced by the management of each carrier, the uncertainty around jet fuel prices is one of the most daunting. In 2022, after the breakout of the Russian-Ukrainian war, airlines faced the umpteenth increase in jet fuel prices which, coupled with the struggles of the post-pandemic recovery, inflicted hardships on airlines’ financial stability.
Nonetheless, a study conducted by the US Department of Transportation’s Bureau of Transportation Statistics (BTS) shows how, in December 2022, the trend of increasing jet fuel prices had started to reverse. Notably, the average cost per gallon of fuel during the last month of 2022 ($3.14) was 5.3% lower than in November 2022. Although a reduction in the cost of jet fuel is always positively welcomed in the aviation industry, one should bear in mind that the price per gallon in December 2022 was still 57% higher compared to the same month in 2019.
Following the 5.3% contraction in fuel prices, US carriers’ total fuel expenditure last month amounted to $4.63 billion, representing a 0.3% reduction compared to the previous month. Nonetheless, US carriers’ expense for fuel in December was still 48.7% higher than in the same month in the pre-pandemic year.
That’s good news. But how much fuel did US carriers need in December?
No one can deny a reduction in the average jet fuel price is a relief for US carriers. However, to properly gauge the relevance of this trend, it shall be considered how much fuel airlines in America required in December compared to the previous month.
According to the Bureau of Transportation Statistics (BTS), US scheduled airlines increased the fuel required in December compared to November. Notably, a total of 1.471 billion gallons of fuel were used, representing a 5.3% increase compared to the 1.398 billion in November. To put it differently, in December 2022, US airlines bought more fuel than in November, but the overall expenditure was less in December than in the previous month.
Let’s do some more digging
So far, we have considered the last two months of 2022 and December 2019. However, what changed compared to 2021?
December 2022 saw a 3% increase in domestic fuel consumption compared to the same month in 2021, which induced a 51.4% increase in the average fuel expenditure. Fuel required for international travel in the last month of 2022 increased by 20% compared to December 2021, causing fuel expenditure to increase by 46%. Overall, December 2022 witnessed an increase of 8% in fuel consumption, causing a surge of 38% in the total cost.
The table below summarizes the evolution of fuel consumption and cost for US airlines from January 2020 to the last month of 2022 to better outline the critical changes that recently characterized the jet fuel market in the US.
The graph shows how both the cost of fuel and its consumption in the US dramatically decreased around April 2020, as the COVID-19 pandemic hit. With US carrier grounding their fleets, demand for jet fuel collapsed, causing its price to fall dramatically. Consequently, even if fuel consumption progressively increased toward the summer of 2022, the total average expenditure remained lower than the consumption volume.
However, around February 2022, when the Ukrainian conflict broke out, fuel prices increased dramatically, overcoming the consumption volume. The fuel cost remained markedly higher than the total consumption until last October, when the total fuel expenditure started to decrease and align with the total consumption.
Source: simpleflying.com