16 June 2015
The relationship between the producer
price (PPI) avtur index and the consumer
price (CPI) airfares index
Figure A: Comparison between avtur and airfare prices, January 2008 to May 2015
United Kingdom
Source: Office for National Statistics
Notes:
1. Click on image for a larger version.
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As can be seen in Figure A, prices for aviation turbine fuel (avtur), as measured by the Producer
Price Index (PPI), are falling, mostly due to the drop in the price of crude oil. Avtur prices fell 31.9%
in the year to May and since January 2014 the average drop in the annual rate has been 17.8%.
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We can also see that since the beginning of 2009 there has been a strong relationship between the
PPI avtur index and the CPI airfares index. However, this trend appears to have changed since June
2014 with CPI airfares showing fairly consistent growth, averaging 3.9%, compared to the average
drop of 21.4% in the PPI avtur index during the same period.
It is worth noting that the CPI differs slightly from the PPI in that it measures the price paid by a
consumer; as opposed to the PPI which measures the price received by a producer. The PPI index
for avtur is also produced using prices from across the month that it relates to, whereas prices used
in the CPI are collected on one day within each month. Depending on events around collection day,
e.g. the timing of Easter, etc, there can be an effect on the price movements observed.
Reports, such as this article from The Guardian, speculate that the cost of airfares is unlikely to drop
in the near future. The article points out that fuel only makes up 30% of an airline's costs, as well as
stating that there is currently high demand for flights. This demand is likely to mean that airlines will
see no reason to reduce their fares. The International Air Transport Association (IATA) forecasts that
global airfares may fall 5%, but will not come near to reflecting the reductions that have been seen in
the price of fuel.
Another factor which may impact upon the relationship between CPI airfares and PPI avtur prices
is the use of “fuel hedging”, which allows an airline to establish a fixed or capped cost for their fuel.
This is designed to protect the airline from the effects of any large increases in fuel prices. In the
case of a significant drop in the price of fuel after the agreement has been finalised, however, it
could result in an airline paying a higher amount than the current PPI rate, and so not realising the
savings that may be expected when looking at the data.
Background notes
1.
Details of the policy governing the release of new data are available by visiting
www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media
Relations Office email: [email protected]
These National Statistics are produced to high professional standards and released according to
the arrangements approved by the UK Statistics Authority.
Copyright
© Crown copyright 2015
You may use or re-use this information (not including logos) free of charge in any format
or medium, under the terms of the Open Government Licence. To view this licence, visit
www.nationalarchives.gov.uk/doc/open-government-licence/ or write to the Information Policy Team,
The National Archives, Kew, London TW9 4DU, or email: [email protected].
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This document is also available on our website at www.ons.gov.uk.
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