Jet Fuel Price Surge Threatens Air Travel Costs and Schedules
A significant increase in jet fuel prices could raise expenses for air travellers ahead of the summer holiday season and potentially result in flight cancellations, analysts have cautioned.
Supply disruptions from the Gulf region, following US and Israeli air strikes on Iran, have driven aviation kerosene prices up by over 80%.
The Gulf is a critical source of aviation fuel, supplying approximately 50% of Europe's imports. Most of this fuel transits through the Strait of Hormuz, which is currently effectively closed.
This week, Wizz Air announced that the ongoing conflict would reduce its annual profit by €50 million ($58 million; £43 million), with rising jet fuel costs being a significant factor.
Prior to the air strikes, the price of jet fuel in north-west Europe was $830 per tonne. It has since surged to over $1,500 per tonne.
These prices represent the highest levels the aviation industry has experienced since 2022, following Russia's invasion of Ukraine.
The price increase highlights the importance of Middle Eastern refineries in the jet fuel supply chain. The Al-Zour refinery in Kuwait alone accounts for roughly 10% of Europe's jet fuel imports, according to Energy Intelligence.
Fuel costs typically constitute 20-40% of airlines' operating expenses. Many airlines employ financial derivatives to secure fuel supplies at fixed or capped prices months or even years in advance, a strategy known as hedging.
British Airways, Virgin Atlantic, EasyJet, and Ryanair are among the airlines known to have implemented hedging strategies. However, several major US carriers have historically avoided hedging, potentially exposing them to short-term price volatility.
Industry Responses and Hedging Practices
Ratings agency Fitch noted in a research report this week:
"Airlines are likely to be affected by higher fuel prices."
"Most EMEA (European, Middle Eastern and African) carriers, including those in the Middle East, typically maintain relatively high fuel-hedging coverage. Hedge levels for the next three months range from around 50% to more than 80%."
An EasyJet spokesperson stated that the airline is currently not impacted by the increase in fuel prices.
Ryanair's chief executive, Michael O'Leary, commented earlier this week that the airline is well hedged against rising fuel costs, adding:
"It won't affect our costs and it won't affect our low fares."
Potential Supply Shortages and Impact on Flights
James Noel-Beswick, head of commodities at market intelligence firm Sparta Commodities, warned that a physical shortage of jet fuel could still cause significant challenges.
Speaking on BBC's Today programme, he explained:
"Even airlines that will have hedged… will normally have hedged their supply or have long-term contracts from Asia. Now these Asian refineries will also be receiving less crude from the Gulf,"
"Therefore, we will be very close to the moment where they start to reduce production rates, and… these airlines will be scrambling around to find fuel from alternative sources."
Noel-Beswick predicted a substantial impact on travellers, stating:
"I think we're weeks away from maybe flight cancellations or delays due to lack of jet fuel, rather than months."
Asked whether prices could rise for passengers over the summer, his answer was emphatic: "Very much so."
Consumer Perspectives on Rising Air Fares
Jane Hawkes, an independent consumer travel expert at ladyjaney.co.uk, concurred that elevated jet fuel prices could lead to increased air fares.
She noted:
"Airlines tend to build fuel costs into their pricing, so if those costs stay high we may well see fares creep up as we head towards the summer holidays."
"This isn't great news for families who already face seasonal price hikes at this time of year and whose budgets are already tight due to the ongoing price rises across the board."
However, Hawkes emphasized that passengers who have already purchased tickets should not face unexpected additional charges:
"When you book a flight, the price you pay should be the final price and it should be honoured."
