Airlines have signalled potential jet fuel shortages from late May, while the head of the International Energy Agency on Thursday (16 April) warned Europe had "maybe six weeks or so of jet fuel left".
Fatih Birol predicted "some" flight cancellations if the Strait of Hormuz doesn't reopen promptly with around 40% of global jet fuel passing through the strait.
The impact of the war in Iran is already being felt, with easyJet taking a £25 million hit from increased fuel costs in March.
EasyJet insists it has “no concerns” about fuel availability until mid-May, while Ryanair claims it has a guaranteed supply “to mid-end May”. Beyond that, the picture is uncertain. Airlines UK told TTG it was talking to the government.
Iata’s Jet Fuel Monitor shows the average price of jet fuel price in Europe is $203 a barrel, up 123% year-on-year.
Chief executive Willie Walsh predicts that even if the strait does reopen, “it will still take a period of months to get back to where supply needs to be, given the disruption to refining capacity in the Middle East”.
Olivier Jankovec, Airports Council International Europe's director-general, urged the European Union to help by collectively purchasing jet fuel.
He also warned if the strait of Hormuz does not reopen in the next three weeks, "systemic jet fuel shortage is set to become a reality for the EU”.
Global oil prices not the only factor
Any supply crisis would arrive just before the summer peak – bad news even for airlines that have hedged their fuel costs.
EasyJet is 70% hedged for the summer, so must buy the rest on the open market. Some, though, are 100% at the mercy of the market – Norse Atlantic has cancelled its Gatwick-Los Angeles route, which had been due to start in June, as it has no hedging in place.
Most major airlines will be partially hedged, the exception being US carriers, which have home-grown fuel supplies and have formed fuel consortia. Delta even has its own refinery. However, all transatlantic carriers will still need to load fuel this side of the Atlantic.
Even if oil supplies stabilise, obstacles remain. Airlines which have hedged have done so only against the price of crude oil, not refined jet fuel.
The difference in price is due to refining costs (known as the crack spread), and refineries will hike prices sharply when global demand increases.
Reduced frequencies and consolidation
With jet fuel typically running to 25-30% of an airline’s costs, this can only mean higher fares, reduced frequencies and grounding of older aircraft.
Lufthansa has confirmed the immediate retirement of 27 regional jets from its CityLine fleet, while four Airbus A340s will leave its long-haul fleet in October, together with two Boeing 747-400s. Both these aircraft have four engines.
“On the one hand, particularly inefficient aircraft are being removed from flight operations early," said Lufthansa. "On the other hand, the saved kerosene quantity reduces the unhedged portion of the group's fuel requirements.”
There will be more of this to come, and while there may not be mass grounding of fleets this summer, scheduled airlines are already operating reduced frequencies and consolidating.
Fuel supply restrictions may see key airports favoured, but agents can reassure clients any holiday flight heading to a small airport in Europe can load enough fuel in the UK for the return trip, although it remains to be seen at what cost.
