January 29, 2023
Is high airfares the fault of oil?

Is high airfares the fault of oil?

Air ticket prices in Brazil saw a significant increase in the first half of March compared to the same period in February, according to Kayak Travel Research. The proportions vary according to the destination: 45% in Florianópolis (SC), 41% in Brasilia, and 40% in São Paulo and Rio de Janeiro. The search only considers the destination, without specifying the origin.

This increase also extended to other services provided by companies, such as sending baggage, which also rose (from 6% to 36%, depending on the company and class of ticket).

Adjustments accompany oil in the international market due to the war between Russia and Ukraine, but to what extent is oil alone responsible for this increase? Are there other factors?

value composition

At Air Brazil, between 20% and 30% of the ticket price consists of expenses for fuel and lubricants directly related to the oil. In an interview with the newspaper “Valor Econômico”, the president of Gol, Paulo Kakinoff, stated that this price Already reached 50% with recent increases.

According to Fabio Bentes, economist at CNC (National Federation of Trade in Goods, Services and Tourism), the price of oil greatly affects the final ticket price, but it is not the only factor.

According to the specialist, the exchange rate is also affecting, and perhaps one of the reasons it still maintains a higher rise, given the decline in the price of the dollar in recent days.

Last March, a liter of aviation kerosene for the first time in history broke the $4 barrier in refineries, which should be felt more strongly in the coming weeks, says the economist.

However, with demand still recovering, the scrolling shouldn’t be too big for consumers. “Since demand is still about 30% below pre-pandemic levels, companies do not have a margin for transfer, which could hamper the resumption of the sector,” says the expert.

How much does it increase?

According to Bentis, the price of oil and the dollar exchange rate must be analyzed to determine the effect on the value of tickets. The increases occur in the following proportions, according to the economist:

  • If the price of oil rises 10%, kerosene rises 6%.
  • If the dollar exchange rate increases by 10%, kerosene advances by 6.7%.
  • If kerosene increases by 10%, the passage rises by 2.1%

“In one month, the exchange rate decreased by 6%, and oil increased by 25%. With this, the price of air kerosene will be 15% higher, with an expected rise of 19% in the coming days,” says Bentis.

Also according to the economist, the expectation is that higher kerosene prices and other oil-related factors will soon account for 4% expensive tickets.

diluted transfer

Alessandro Azzoni, a lawyer and economist, says the increases should not be transferred directly to the fare, but rather should be watered down in other services provided by companies. This explains the increase in the value of checked baggage.

“Companies can reduce part of the ticket price and the rest in additional income, so as not to scare away those who use a few services, such as preferential boarding, sending baggage and food,” says the lawyer.

To avoid exceeding the increase, companies will also need to change their strategies, such as revising routes and reducing the number of trips, Azoni says.

“Instead of delaying a flight by the hour, it’s possible to start spacing out departures to make planes full,” he says.

Companies are trying to protect themselves

To avoid more serious impacts on their operations with the increase in the price of aviation kerosene, companies have taken a series of measures, such as changes to their routes.

Latam has postponed the launch of six new bases to June and August, in addition to postponing the opening of five new routes to July. At the same time, the company faced the need to temporarily suspend 10 routes it already operated, such as those connecting Brasilia Airport (DF) to Rio Branco (AC), Uberlância (MG) and Imperatriz (MA).

In a note, Azul reported that “the continuation of this scenario could delay a more aggressive 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.”