Airlines see relief with $86 jet fuel, SAF costs hinder sustainability: IATA chief

The global airline industry is experiencing financial relief in 2025, driven by declining oil prices that are reducing jet fuel costs, Willie Walsh, International Air Transport Association's director general, told Platts, part of S&P Global Commodity Insights, on June 2 during the IATA 2025 AGM in New Delhi.

According to the IATA, jet fuel is projected to average $86/b this year, a 13% drop from 2024 and 1% lower than earlier forecasts.

This drop is expected to lower the total airline fuel bill to $236 billion in 2025, down $25 billion from the previous year, representing 25.8% of airlines' operating costs.

The financial benefit is reflected in the industry's improved net margins, which are forecast to rise from 3.4% in 2024 to 3.7% this year.

Walsh noted that falling oil prices are helping airlines manage their largest cost center while enabling more competitive ticket pricing. "It's typically our single biggest cost, so it would help to offset any weakening demand if we were to witness a slowdown," he said. "There's almost a direct correlation between the price of oil and the price of airline tickets." While lower fares may stimulate demand, they could also impact overall revenue. Nonetheless, Walsh described the improved profitability as "a strong result that demonstrates the resilience airlines have worked hard to fortify."

SAF scenario

However, the benefit of lower oil prices is being tempered by a sharp rise in sustainable aviation fuel costs, largely driven by compliance costs under new European regulations.

SAF production is expected to double to 2 million mt in 2025 compared to 2024, but it will still account for only 0.7% of total airline fuel consumption.

Despite its limited market share, the average global cost of SAF is forecast to be 4.2 times higher than conventional jet fuel in 2025, up from 3.1 times in 2024.

This cost disparity is primarily attributed to "compliance fees" imposed by European SAF suppliers, which are intended to hedge against regulatory risks under the EU's SAF mandate requiring 2% SAF in all jet fuel blends.

These fees have pushed SAF costs far beyond their already high production prices, resulting in an estimated $1.6 billion in additional SAF expenses in 2024, with further increases expected in 2025.

Walsh said, "The behavior of fuel suppliers in fulfilling the SAF mandates is an outrage. The cost of achieving net-zero carbon emissions by 2050 is already estimated at a staggering $4.7 trillion. Fuel suppliers must stop profiteering on the limited SAF supplies available and ramp up production to meet the legitimate needs of their customers."

While SAF adoption is critical for meeting long-term climate goals, IATA warned that unjustified price markups hinder progress. High costs and limited availability are making it difficult to scale SAF production, especially amid competing financial priorities.

Additional financial pressures

The cost of complying with the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is expected to reach $1 billion in 2025, adding further financial pressure. To date, only Guyana has issued certificates meeting CORSIA's high-quality standards, leaving the market for offsets extremely narrow.

Despite these challenges, IATA expects the global airline industry to perform better in 2025 than in 2024. Improved profitability is anticipated across most regions, with the notable exception of Latin America.

Carriers in the Middle East, Asia-Pacific and North America are forecast to post healthy margins, while African airlines are projected to remain the least profitable, with an average net margin of just 1.3%.

Geopolitical and economic risks remain key concerns for the industry. While resolving conflicts such as the war in Ukraine could enhance connectivity and reduce operating barriers, any escalation could have the opposite effect, IATA said.

Additionally, ongoing trade tensions and uncertainty surrounding US economic policy are dampening cargo and business travel demand.

In the face of such volatility, the drop in oil prices has provided a much-needed cushion. However, the industry's long-term sustainability goals remain precarious. Unless SAF becomes more affordable and widely available, the cost of the green transition could exceed the industry's financial capacity to pay for it.

Platts, part of S&P Global Commodity Insights, assessed Asia SAF-Jet Fuel Spread at $1,122.04/mt on May 30, down $1.68/mt day over day. USWC SAF-Jet Fuel Spread was assessed at 458.38 cents/gal on May 30, up 5.49 cents/gallon day over day. Meanwhile, European SAF-Jet Fuel Spread was assessed at $1,331.37/mt on May 30, up $9.49/mt day over day.