Air Transport Industry

Description of the Challenge

Availability and cost of aviation fuel have been the major economic factors affecting the industries for years. Aviation fuel is a critical resource for the operation of the industry; as it stands, the industry heavily relies on fossil fuels, and the fluctuations in global oil prices directly affect the availability and cost of aviation fuels (Gössling, 2020). Moreover, airline industries have started to recover from the COVID-19 challenge and the challenge of the spike in oil prices was presented. From the start of 2022, the price of jet fuel has increased by approximately 90% and cost roughly 120% more than in 2021. It is essential to understand that fuel prices in the airline account for 25% of the operating costs (IATA, 2023). Figure 1 below shows the progression of oil prices against jet fuel prices in the past 24 months. The data shows that in the past few months, prices have steadily increased, which negatively affects the industry.

Jet fuel prices for the past 24 months Source: (IATA, 2023)

Based on historical information, the airline industry has always faced periodic spikes in fuel costs due to geopolitical events. For instance, the current Russian invasion of Ukraine caused the imposition of sanctions on Russia, which has been one of the largest oil producers in Europe. This increased the oil demand worldwide, and the prices have steadily risen since then (Wei et al., 2019). Since the invasion, oil prices have increased by 100%. It is possible to claim that the oil industry is very vulnerable to geopolitical events, and any changes affect the prices, which may positively or negatively affect the oil prices (IATA, 2023). Figure 2 below shows the most recent jet fuel prices and the percentage increase in the past few weeks.

Figure 2 Recent jet fuel prices. Source: (IATA, 2023)

The changes in availability and cost of aviation fuel affect various stakeholders in the industry in different ways. For instance, an increase in fuel prices leads to increased operating costs, which affects the owners due to lower profitability of the venture. Moreover, an increase in operating costs may lead to air travel fares, directly affecting airline service consumers (Ueckerdt et al., 2021). On the other hand, fluctuating fuel prices can affect airlines’ strategic planning and long-term investments. Therefore, beyond the financial implications, the issues with aviation fuel availability and costs directly relate to environmental concerns. Increased fuel costs may tamper with the investments in fuel-efficient aircraft, affecting the efforts of the industry to reduce its carbon footprint.

Finally, the cost and availability of aviation fuel constantly varies from region due to differences in regulations, geopolitics and transportation infrastructure. Some regions face abundance, while others face acute shortages. Therefore, the challenge of availability and cost of aviation fuel is a critical concern for the air transport industry (Schäfer et al., 2019). The challenge is marked by its historical volatility, substantial financial implications for the various stakeholders in the industry and the potential environmental consequences. Hence, there is a need for further studies of the issues and the development of potential solutions.

Emerging Opportunities to Address the Challenge of Fuel Cost and Availability

Innovative and pragmatic solutions are needed to address the challenge of cost and availability of aviation fuel to cater for relevant stakeholders’ interests and limitations. However, it is essential to understand that the rise in fuel prices does not necessarily mean a loss of profitability for the airline industry. The increase in fuel prices may be painful for the industry in the short term when the industry gets the capacity and deployment right, which is very important for the airline industry (Wu et al., 2021). On the other hand, the industry may consider alternative fuels and sustainable aviation to ensure less dependence on fossil fuels. These two emerging opportunities are discussed below.

• Capacity and Deployment

Recently, there have been problems in aircraft and fleet management capacity and deployment. Many opportunities exist in this area to ensure that the industry remains fuel-efficient. Firstly, there is a need for fuel-efficient fleet management and strategic fleet management to optimize fuel efficiency (Ma et al., 2021). A good example is the case of Kenyan Airways, whose fleet consists of only Jumbo Jets, which have large carrying capacities. The demand for the services does not always meet the supply, and the operations costs sometimes outweigh the profits; this issue can be solved by purchasing smaller aircraft and collaborating with other airline industries to ensure that the capacity of the aircraft is met and profits are realized on every flight. Generally, the retirement or modification of older, less fuel-efficient aircraft and acquiring more modern, fuel-efficient models (Brynolf et al., 2022). Right-sizing the fleet for specific routes and seasonal demand can minimize the impact of high fuel prices.

Another opportunity lies in the pricing strategies where the airlines implement dynamic pricing strategies that reflect the fuel and cost variations. It involves passing a portion of the increased fuel costs to passengers through fuel surcharges while keeping the base fares competitive (Rajendran & Srinivas, 2020). Additionally, the pricing strategies, when coupled with the opportunity that lies with route optimization, play a vital role in reducing fuel consumption. Advanced data analytics and optimization algorithms help the airlines identify the most cost-effective paths, altitudes and speeds. Using such tools helps the industry make real-time adjustments on long-haul routes, making significant fuel efficiency gains.

Finally, fuel management and negotiation, where the effectiveness can be achieved by using hedging strategies to mitigate price volatility and negotiation to favourable fuel supply contracts. Bulk purchasing and long-term agreements with fuel suppliers provide cost stability during price fluctuations (Panoutsou et al., 2021). Moreover, government and aviation regulators can incentivize fuel efficiency by setting emission reduction targets and offering incentives for implementing sustainable aviation practices. It is also essential to support research and development in the aviation sector to promote innovation and fuel-efficient technologies.

• Alternative Fuels and Sustainable Aviation

The problems with fuel cost and availability can be solved with the opportunity that lies in the development and adoption of sustainable aviation fuels (SAFs). Options such as biofuels and synthetic fuels produced from renewable sources significantly reduce the industry’s carbon footprint (Grewe et al., 2021). Promoting SAFs by incentivizing them is necessary, leading to a sustainable and cost-effective airline industry. Moreover, with improved operational efficiency and sustainable practices, there is an opportunity for game changers (Zhao et al., 2019). Activities include reducing unnecessary weight on the aircraft and employing more fuel-efficient technologies. The airline industry needs to partner with manufacturers in investing in fuel-efficient aircraft, reduce long-term operational costs, and benefit the environment.

Moreover, investment in green technologies in the airline industry remains an opportunity for the industry. Airline industries can explore cutting-edge green aviation technologies such as hybrid-electric and electric propulsion systems. Such technologies can change the aviation industry by reducing heavy dependence on fossil fuels. However, such a transition may take time and resources. Hence, a gradual approach is needed (Williams., 2021). On the other hand, the airline industry can explore the opportunity that lies with the diversification of energy sources. It involves the integration of renewable energy options at airports to power ground operations to promote a sustainable and cost-effective environment. For instance, solar power can be used for ground services and facilities.

Finally, while checking the sustainable options for fuel and cost-effectiveness, there is a need to balance the industry’s economic viability. Alternative fuels and green technologies should be adopted to align with the industry’s financial constraints and avoid unaffordable fare increases for passengers (Hoelzen et al., 2022). The challenge of fuel availability and cost presents an opportunity for the air transport industry to embrace innovative and sustainable solutions.

Conclusion

The air transport industry faces many challenges due to the availability and cost of jet fuel. Therefore, price changes directly affect the industry’s profitability, so it is a point of concern for the industry. It is essential to understand that there are multiple solutions to the problems posed by cost and availability of fuel. Capacity and deployment help the industry optimize fuel use, while alternative fuels and sustainable options give another way forward for the industry. When put into practice, these two solutions have provided viable solutions to all the stakeholders in the industry.

References

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IATA. (2023). Annual Report 2022. https://www.iata.org/publications/reports/annual-report/