Millions of Americans will travel by air over the upcoming Memorial Day weekend. Last year, Memorial Day weekend included two of the year’s busiest days for airline travel in the United States. Almost two million people passed through TSA checkpoints at airports on Friday and Monday of the holiday weekend.
However, this year, the masses that will travel by plane will have to deal with rising airline ticket prices.
U.S. inventories for jet fuel are now at a 17-year low. Corresponding to the reduction in inventories is a rise in airline ticket prices.
Jet-fuel prices have risen at the astonishing rate of over 162% in just the past three weeks. The main factor is Western sanctions against Russia’s energy exports after it invaded Ukraine in February. Russia is the world’s largest source of gas and produces about twelve million tons of jet fuel per year, of which about 2.5 million tons are exported around the world.
Sanctions against Moscow have led to a supply crunch in worldwide energy markets that filter to the domestic markets in countries like the United States and its allies.
Expenses on jet fuel make up 20-30% of the total operating cost for an airline. With airline companies facing rising costs, they will pass this cost on to their customers through higher prices.Â
“The consumer will see an impact in fares. There’s no question about it. Or they will see airlines cut back on flights,” Tom Kloza, global head of energy analysis at OPIS, told CNN.
“This is the most parabolic move I’ve seen in decades, and it cannot be credited to simple supply and demand economics,” Kloza added. “I’ve never seen anything like it.”
Things will be particularly bad on the East Coast, which has some of the busiest travel hubs in the world. The East Coast relies on the Colonial Pipeline that travels from Texas to New Jersey. Typically, this is supplemented by imports from Europe, referred to as PADD 1. However, exports have been down almost 60% since last year due to the sanctions.
East Coast jet fuel costs have reached record highs recently, with spot prices in New York exceeding $7.30 per gallon on Monday, more than double the seasonal average.
“It is ridiculous what’s going on in PADD 1 with jet, and it’s not sustainable,” said Patrick De Haan, lead petroleum analyst at GasBuddy.
The situation is not as bad on the West Coast as America’s Asian and Middle Eastern trading partners prefer to export fuel there. However, recent problems at California refineries have also created shortages whose effects the East Coast will feel.
Recently, a Chevron Corp refinery and a PBF Energy Inc. plant experienced malfunctions with fuel-producing units in California.
Those wanting to travel over the Memorial Day weekend will have to deal with rising airline tickets, and driving will not offer much relief as an option, either, thanks to high gas prices. Families planning a holiday road trip will need to upgrade their budgets to account for these higher costs.
