Soaring Aviation Fuel Prices Affect Icelandair and Play

mbl.is/Árni Sæberg

Vala Hafstað

Share prices of airlines worldwide continued to drop yesterday after aviation fuel prices rose to new heights — the highest in 13 years, Morgunblaðið reports. The price of aviation fuel has risen by 50 percent since Russia’s invasion of Ukraine began on February 24.

Icelandic airlines have been affected, just like other airlines: the value of Icelandair has dropped by 25 percent since February 24, while the share price of the airline Play has never been lower since the company was listed in July of last year. The value of Play has dropped by 30 percent since its highest point in October of last year.

Photo/Birgir Steinar

Both airlines are very vulnerable to higher aviation fuel prices. Play has no fuel hedging, that is, a contractual tool to reduce its exposure to rising fuel costs, and Icelandair reported February 16 that it had hedged about 29 percent of its estimated fuel use for this quarter and 23 percent for the second quarter for a price of USD 660 a ton. According to Morgunblaðið, the price per ton of aviation fuel has now soared to USD 1,341.

The value of the Icelandic króna against the Euro has dropped again to a level similar to what it was in January. Until the invasion on February 24, its value had been rising, thanks to expectations of an improving outlook.

Jón Bjarki Bentsson, chief economist at Íslandsbanki bank, states one can conclude that the market is reassessing the outlook. It may have played a part in the strengthening of the Icelandic króna in the new year that some investors positioned themselves with a strengthening króna, but that is no longer the case. Those investors are now faced with a much more uncertain future, including uncertainty about short time prospects in the travel industry, due to the war in Ukraine.

It is not high fuel prices alone that threaten the financial situation of airlines, for a security threat, such as the war in Ukraine, reduces people’s willingness to travel.

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