The rising price of jet fuel, which recently reached its highest point in well over five years, at almost $103/barrel, has become yet another challenge for the global aviation industry, which is badly hit because of Covid-19.
Fuel is a major cost component of operating an airline, often accounting for 20-30% of operating costs, according to OAG, a UK-based global travel data provider.
So, a rise in fuel costs of this scale (70% up on a year ago) means airlines have to reduce costs elsewhere or increase fares, OAG said and noted, “In the current operating environment neither is easy.”
The global body of airlines – IATA estimates that jet fuel will average $102.2/barrel this year. This, it said will have a $65bn impact on the airline industry’s 2022 fuel bill.
Fuel is such a large cost for airlines that it is the focus of intense efforts across the industry to find efficiency improvements.
Such gains can take a variety of forms including replacing fleet with new aircraft, more efficient operations and efforts to persuade governments to remove the airspace and airport inefficiencies that waste around 5% of fuel burned each year.
Industry experts say fuel costs constitute roughly one-third of an airline’s operating costs. Hence, a marginal change in crude oil prices can significantly impact its profitability.
Jet fuel prices have long driven airline profitability and the aviation industry as a whole, representing between 14% and as much as 31% of airline operating costs in the past decade, an estimate shows.
Consequently, airlines hedge a large portion of their annual fuel consumption at lower oil prices in order to protect themselves from the volatility in oil prices.
Many experts have called for increased use of sustainable aviation fuel (SAF) to tide over the crisis.
But according to IATA, the global production of sustainable aviation fuel (SAF) is only about 100mn litres a year, or 0.1% of all aviation fuel used.
Various airlines have, however, committed to bringing this figure to 10% by 2030, a truly ambitious goal.
“Unfortunately, while production is low volume the cost is also high. IATA estimates the cost of SAF is between two and four times higher than fossil fuels, although a recent announcement by Air France-KLM implied that the cost differential may be more like four to eight times the costs of kerosene,” noted aviation analyst Becca Rowland.
On average, the cost of producing SAF is greater than conventional jet fuel, noted Robert Boyd, assistant director, Energy Transition and Policy, IATA.
“This is the greatest impediment to an instant ‘flick a switch’ transition,” Boyd said.
But it is more complex than this, as there are more than 50 different SAF feedstock and technology combinations that can be applied.
Geography, cost of labour, and regulatory frameworks all add to the cost complexity. The complexity of the SAF production system is a challenge, but one that is becoming quickly understood for the opportunity. Already today, some long-term offtake agreements have been inked as cost competitive.
The global air transport industry recently took a momentous decision to achieve net-zero carbon emissions by 2050 and ensure that flying is sustainable.
To achieve that, cost-competitive sustainable aviation fuels (SAF) should fuel the majority of aviation’s global emissions mitigation in 2050.
It is estimated that (under the industry’s trend setting initiative CORSIA or Carbon Offsetting and Reduction Scheme for International Aviation — a global carbon offsetting scheme) aviation will have to offset 2.6bn tonnes of CO2 between 2021 and 2035.
Obviously, the aviation industry has pinned its hopes on sustainable aviation fuels, which it believes will help reduce airlines’ global emissions and industrial carbon footprint.
It is proven that SAF can cut CO2 lifecycle emissions up to 80% compared with conventional jet fuel. It uses sustainable fuel sources, which do not compete with food or water, or damage biodiversity.
Rather than being refined from petroleum, SAF is produced from sustainable resources such as waste oils from a biological origin, agri-residues, or non-fossil carbon dioxide (CO2).
Sustainable aviation fuels are currently certified by regulators for up to 50% use in commercial flights.
With appropriate government policy support, SAF production is expected to reach 7.9bn litres (2% of total fuel requirement) by 2025. And by 2050, SAF production is expected to hit 449bn litres (65% of total fuel requirement).
SAF has been around since 2008. And more than 300,000 flights have taken to the skies using SAF since 2016, according to the International Air Transport Association. More than 45 airlines now have experience with SAF.
These flights have used it blended with regular aviation — without the need for any modification of engines or aircraft — and production continues to grow.
The amount of SAF used by commercial aircraft rose 65% between 2019 and 2020, despite the devastating financial impact of Covid-19 on airlines.
Traditional jet fuel is a hydrocarbon, almost exclusively obtained from the kerosene fraction of crude oil. Two types of fuels are used in commercial aviation: Jet-A and Jet A-1.