Aviation kerosene price may rise 11% with higher exchange rates and oil

The price of aviation kerosene (QAV) may increase by around 11% in the coming months, due to the variation in the exchange rate and the increase in the price of a barrel of oil.

The data are from a survey by the National Confederation of Trade in Goods, Services and Tourism (CNC), carried out exclusively for the CNN.

According to the National Agency of Petroleum, Natural Gas and Biofuels (ANP), from January to March this year the price of a liter of QAV increased by 15%, from R$3.44 at the beginning of January to R$3.98 at the beginning of March.

Based on data from the last nine years on the variation in exchange rates and a barrel of oil, CNC economist Fabio Bentes calculated the relationship of these variables with the price of jet fuel.

The conclusion is that with every 100% increase in the exchange rate, the QAV rises 67%, and with every 100% increase in the price of a barrel of oil, a 60% increase can be observed in the price of jet fuel.

In the case of airline tickets, for each 100% increase in the QAV, a 21% readjustment is observed in the fare price.

Due to the war in Ukraine, which has lasted more than two weeks, the price of oil and the dollar have suffered highs and variations.

Based on a scenario in which the dollar costs R$ 5.20 and Brent oil is traded at US$ 140, the forecast is that the QAV will have an increase of 11.3% in the price of the liter in up to one month. .

With this increase, the price of air fares, still according to the projection, may have a readjustment of at least 2.4%.

Bentes explains that the consumption of this type of fuel is “very fast” and the volatility of the stock is constant, which means that any increase in the price of the dollar or of oil impacts the value of jet fuel.

“If you have an escalation in the price of oil, as we had, the stock of jet fuel is quickly consumed, and the increase in the cost of the commodity is putting pressure on the price of jet fuel,” he said.

The next move is that airlines must pass this on to the consumer, within two months or so”, highlighted the economist.

In a note, the director general of the International Air Transport Association (IATA), Willie Walsh, said that if the price of oil remains high, this will be directly reflected in the earnings of airlines.

“When we made our latest industry financial forecast last fall, we expected the airline industry to lose $11.6 billion in 2022 with Brent crude at $67/barrel and fuel accounting for 20% of costs.” stated.

“Today, Brent is trading at more than $110. At this level, fuel could account for half of the cost base of some airlines,” added Walsh.

In the statement, IATA says it is a huge challenge for the sector to absorb such a “big cost” impact, while the industry is still struggling to recover from the two-year crisis of the pandemic.

According to the CNC economist, in February 2020, pre-pandemic period, the Brazilian air sector earned about R$ 3.5 billion per month.

After the outbreak of Covid-19, the air transport service was significantly impacted, with revenue falling by 80% for some airlines.

“When you have a significant price shock at the beginning of the low season, which is what we are going to have now in the coming months, it will certainly mean a setback in this recovery process”, he announced.

“This impact on QAV, at a time of falling demand, will certainly affect this recovery trend. In fact, it is even very likely that for one or two months we will have a drop in revenue generation in the airline industry”, added the expert.

Impact on Tourism

For Fabio Bentes, the air sector is an excellent thermometer for domestic tourism due to the geographic characteristics of Brazil, which demand air transport services.

However, Bentes explains that when you have a process of price acceleration, families generally cut spending on leisure.

“Leisure tourism, for example, will be the first to feel it, especially as it is leaving the high season,” he said.

“We should have a slowdown in this recovery process, yes, because the price of air tickets, although it has fallen in the last two months, will surely have to be readjusted to adapt to the increase in costs that the sector is currently facing”, he highlighted.

According to data compiled by the National Confederation of Trade in Goods, Services and Tourism (CNC), the tourism sector lost BRL 214 billion last year, accumulating, since February 2020, BRL 473.7 billion in revenue losses. .

price of air tickets

THE CNN questioned the three main domestic airlines in Brazil about the impact of the increase in the price of QAV on airline tickets. In a note, Gol said that “it is in a period of silence”, and that “the results for the fourth quarter of 2021 will be released this Monday (14).”

Latam reported that it remains attentive to the evolution of the war in Ukraine. The company also emphasized that “the impact on airline costs is undeniable, due to the high price of aviation kerosene (QAV) that. unfortunately, given the imposition of this new scenario of crisis without precedence and predictability, it will affect the increase in ticket prices.”

Azul regretted the war established by Russia and sympathized with the victims and with Ukrainian and Russian citizens.

The company states that “although the value of a barrel of oil was already a little higher 14 years ago, the current situation is much worse, because at that time the value of the dollar was much below the current R$ 5.00 and was quoted below of BRL 2.00.”

“This math is very impactful for the airline industry, especially for Brazilian companies, which have several costs in dollars and one of the most expensive fuels in the world,” the company said.

She adds that “the continuity of this scenario could postpone a more vigorous resumption of the offer of flights in the country, as well as the inclusion of new cities and new routes and frequencies between airports that already have air service.”