Airlines face up to tightened supply

Disruptions to crude oil supply through the Strait of Hormuz have directly affected aviation fuel availability in Asia. The benchmark Jet A-1 Singapore price rose from $83.30 per barrel in January to $116.50 on March 2, before surging to $231.40 on March 4, an increase of roughly 160 per cent within just the first four trading days of March.

- By Minh Huong

The global aviation industry's post-pandemic landscape, including that of Vietnamese carriers, is facing renewed turbulence as Jet A-1 aviation fuel prices surge while supplies tighten worldwide.

In a meeting with all airlines last week, Uong Viet Dung, director general of the Civil Aviation Authority of Vietnam (CAAV), noted that it had submitted recommendations to the Ministry of Construction in order to tackle rising operating costs in the face of global geopolitical turbulence.

The proposals include exempting all of the environmental protection tax on aviation fuel until the end of May; adding aviation fuel to the list of goods eligible for VAT reductions from 10 per cent to a lower level; allowing flexible fuel surcharges on domestic air tickets; and considering adjustments to domestic airfare price caps if necessary to maintain airline operations.

Fuel accounts for a significant share of airlines’ operating costs. Typically, fuel expenses represent around 35-40 per cent of total operating costs, depending on fleet age, operational efficiency and route structures.

By March 10, Jet A-1 price was trading around $160.50 per barrel and is expected to remain elevated, potentially approaching $170 per barrel during March, amid escalating geopolitical tensions and limited supply. In addition, the physical premium for Jet A-1 has risen from the usual $1-2 per barrel to around $18-21 per barrel, significantly increasing overall aviation fuel costs.