SAS raises fares as Iran war drives oil above $100

Tuesday 10 - 09:20

By: Dakir Madiha

SAS raises fares as Iran war drives oil above $100

Scandinavian airline SAS has introduced a temporary fare adjustment on its flights as surging jet fuel prices push airlines to pass rising energy costs onto passengers. The move comes as the war involving the United States and Israel against Iran drives crude oil prices above $100 per barrel for the first time in nearly four years.

Reuters reported that SAS cited higher jet fuel costs linked to the conflict in Iran and supply disruptions through the Strait of Hormuz as the reason for the pricing change. The announcement follows warnings from airlines worldwide that rising energy costs would soon translate into higher ticket prices.

Oil markets have been highly volatile since the escalation of the conflict. On Monday, crude oil prices crossed the $100 mark per barrel for the first time since mid-2022 as traders reacted to fears of prolonged supply disruptions.

U.S. West Texas Intermediate futures surged to their highest level in three years and nine months before falling later in the day. The drop followed statements from G7 finance ministers that they were prepared to coordinate the release of strategic petroleum reserves if needed.

Brent crude, the international benchmark, climbed as much as 19.8 percent during the trading session to reach $111.04 per barrel before retreating, according to Reuters.

The Strait of Hormuz, a critical shipping route through which about 20 percent of the world’s oil supply passes, has been effectively closed for more than a week following U.S. and Israeli strikes on Iran on February 28. Tanker traffic through the passage has dropped sharply, falling from more than 50 vessels per day to only a handful, according to Lloyd’s List, cited by The Guardian.

Airlines are already preparing for the financial consequences of the fuel spike. United Airlines chief executive Scott Kirby said last week that the surge in aviation fuel prices could have a significant impact on airline finances and that fare increases would likely follow quickly.

According to the International Air Transport Association, jet fuel typically accounts for between 20 percent and 30 percent of airlines’ operating costs.

Fuel prices in Singapore have surged sharply in recent days. Reuters reported that aviation fuel there reached $225.44 per barrel on March 5, up from $93.45 on February 27, prompting discussions among Asian and Korean airlines about introducing fuel surcharges.

Ticket prices on some routes have already risen dramatically. Data cited by The Street from Google Flights showed fares between Seoul and London jumping from $564 to $4,359 within just over a week, reflecting the impact of rising fuel costs and reduced supply.

The energy shock is also affecting consumers more broadly. The average price of gasoline in the United States has risen 17 percent since the start of the conflict, according to the Oil Price Information Service, cited by Axios.

Energy analyst Tom Kloza of Gulf Oil warned that if the Strait of Hormuz remains blocked, diesel prices could rise to between $4.50 and $5 per gallon, while gasoline could approach $4 in many regions.

Morningstar analysts expect airline profitability to face pressure in March due to the unexpected fuel price surge. Carriers are likely to adjust ticket prices for future travel as quickly as possible to reflect new fuel cost forecasts.

Delta Air Lines has previously estimated that every one-cent increase in the price of oil per gallon can add about $40 million to its annual fuel expenses.