The Impact of Soaring Crude Oil Prices on the Air Transportation Industry Index

Abstract

On February 24, 2022, Russian President Vladimir Putin cited "demilitarisation and de-Nazification" as a justification for military intervention, leading to the deployment of Russian forces to invade Ukraine. In addition, it is important to note that Russia and Ukraine, as prominent global oil-exporting regions, annually contribute approximately 200 million tonnes of crude oil to the global market. The conflict between these two countries has significantly influence the global crude oil prices, thereby exerting a significant influence on businesses that rely heavily on energy resources. As one of the industries with the highest energy demands, the aviation industry is also substantially affected. Examining the relationship between energy costs and the airline industry, this paper will examine fundamental concepts such as the impact of fuel prices on the aviation industry, role of fuel cost in operational costs, and the effects of fuel cost volatility on airline stock. In order to determine the effects of fuel cost fluctuations the global air transport industry, the theoretical framework for this essay including comprised of pertinent theories, Demand and Supply theory, the Perfect Competition Model, and the Market Efficiency Hypothesis. This paper argues that the rise in crude oil prices caused by the conflict between Ukraine and Russia has a considerable negative impact on the stock price of the air transportation industry.