Lower fuel costs will eventually help air shippers

The recent fall in oil prices may eventually grant some relief for air cargo shippers, but customers may not see immediate benefits due to price hedging by carriers.    The recent sustained fall in oil prices will grant some relief for air cargo shippers, but customers may not see immediate benefits due to price hedging by carriers.
   “A lower oil price has to be on the face of it good for the airlines — cost will come down,” Tony Tyler, director general and chief executive officer of the International Air Transportation, said during the organization’s Global Airline Media Day Wednesday in Geneva. But he allowed that the drop won’t be immediate because of hedging.
   Brian Pearce, IATA’s chief economist, added, “Airlines have been hedging their fuel bill, so the actual prices airlines pay won’t fall as a result of declining spot prices for a few months. Unambiguously, we would expect to see both travelers and shippers benefit from a decline in fuel prices.”
   But with IATA’s per-barrel Brent crude prediction for 2015 at $85, which is coming on the heels of a 40-percent drop in jet fuel prices in the past 6 months, shippers will almost certainly see reduced fuel-surcharge costs going forward.
   “That’s more than double the 2004 price,” Tyler said of the 2015 prediction, “yet somehow it now seems cheap. There is no doubt that the recent fall in the oil price is a relief for airlines.”
   According to IATA’s jet fuel price monitor, the price of jet fuel on Dec. 5 was $85.80 per barrel, 32.9-percent less than one year ago. Compared to the week prior, the price of jet fuel had fallen by 7.6 percent from the $92.80 per barrel measured on Nov. 28. (That price was a 5-percent drop from the previous week.)
   Next year, IATA predicts that jet fuel prices will average $99.90 per barrel. This price trend, coupled with greater fuel efficiency — the group predicts airline fuel efficiency will improve by 1.4 percent in 2014 — will ease cost pressures. IATA pointed out that this sustained fall in oil prices won’t equal the drop measured in 2009 because the current economic cycle is stronger.
   IATA is predicting cargo revenues of $63 billion in 2015, up $1 billion from 2014. Cargo volumes will grow by 4.5 percent in 2015, the group predicted, after 4.3-percent growth in 2014. Tonnage will grow to 53.5 million tons next year, up from 51.3 million tons. This nearly mirrors world trade growth, which should average 4 percent in 2015; world GDP is expected to grow by 3.2 percent over the same time period. 
   The average freight rate will come out to around $2.11 per kilogram in 2015, a 5.8-percent reduction from 2014’s average cost of $2.25 per kilogram. In 2013, IATA said carriers paid an average of $2.35 per kilogram.
   Air cargo shrank or didn’t grow between 2010 and 2013, but since then, it’s experienced slow expansion.
   “Air cargo is expanding more or less in line with international trade … but only in the last few months, have we exceeded the peak seen in 2010,” Pierce said.
   Uneven recovery has been the name of the game, Pierce said, with Middle Eastern carriers seeing most of the business, he said. Asia-Pacific carriers are seeing 8-pecent less business than in 2010, he said. The Middle Eastern carriers, by contrast, are up by 55 percent. North American carriers are down by 4 percent.
   Globalization is experiencing a “pause,” Pierce said, and this is threatening the resurgence of air cargo. According to IATA data, air cargo tonnage grew by 6.4 percent, on average, before the financial crisis; now, volumes are only accelerating by an average of 1.2 percent annually. Pierce pointed to onshoring and trade protectionism as two trends limiting globalization and air cargo growth.
   “The airline industry is delivering great value,” Tyler said. “And while the rewards are still shy of sustainable, it is good to see that the gap is narrowing.”