European airlines are facing an anxious wait as fears grow that the continuation of the Iran War into May could lead to an aviation fuel drought across the continent during the peak summer season.
Following the collapse of the latest round of peace talks and the dual blockades of the Straits of Hormuz operated by both the US and Iran, tankers that normally supply half of Europe’s aviation fuel are going nowhere.
And while the continent’s airlines are well prepared for such problems with stocks of fuel available, fears are now growing that if the trade routes don’t reopen soon then airlines will be forced to review and amend their schedules in May, just as the peak season comes into sight.
Aviation expert and JLS Consulting director John Strickland says the threat of a fuel shortage is being further compounded by the uncertainty created by the ongoing war.
He adds: “We don’t know at the present time what might pan out, if the war comes to a swift close there won’t be any problems but unfortunately the elements involved in it are just too unpredictable to call.
“All the airlines are indicating that they have fuel for one or two months and all the airlines I am speaking to are saying they have a supply for that kind of time frame.
“It’s moving every day so we don’t really know what will happen but airlines are calm while not being complacent in the current time.”
A finely balanced future
Strategic Air consultant director Dr Tony Stanton agrees that as long as the end of the war remains on a knife edge, so does the scale of the problems it can cause European airlines which will already be negotiating the short-term impact through stockholding, rerouting, tanker strategies and uplift planning revisions.
He adds: “The risk is real but the scale of operational disruption will depend on whether this remains primarily a pricing and supply-chain issue or develops into a sustained physical supply shortage at major hub airports.
“The more likely near-term effects would be higher fuel costs, tighter operational margins and selective disruption in supply chains that are already constrained.”
AGB Associates managing partner and former head of ABTA’s legal services Alan Bowen agrees that consumers will be hit in the pocket before any major disruptions to schedules are encountered.
He adds: “Unfortunately about 50 per cent of aviation fuel for Europe comes through the Straits of Hormuz. What we will have to do is find other sources and the real problem is the cost and we are going to see airfares going up which will have an impact on demand.”
The International Air Transport Association’s (IATA) jet fuel price monitor certainly reveals the explosion in fuel costs with a barrel in Europe costing $203.61 last week, up from a price of between $75 and $80 before hostilities broke out, while only the Americas offer cheaper fuel.
Fuel prices are certainly a key concern in the boardrooms of Europe’s airlines, with Michael O’Leary, group CEO of Europe’s largest airline Ryanair, sharing his concerns with Sky News as early as the beginning of April.
He reveals that should the war end in the same month, “then there’s no risk to supply”.
However, he adds “If the war continues and the disruption to supply continues, we think there is a reasonable risk that maybe 10 per cent, 20 per cent, 25 per cent of our supplies might be at risk through May and June.
“So, like everybody else in the industry, we hope this war ends sooner rather than later.”
Elsewhere, the Airlines Council International Europe (ACI Europe) is so worried about the fuel situation since the start of the war in February that it has written to the EU transport commissioner Apostolos Tzitzikostas to highlight the problem in April.
In a letter that was shared with the Financial Times, it warns of “increasing concerns of the airport industry over the availability of jet fuel as well as the need for proactive EU monitoring and action”.
It adds: “If the passage through the Strait of Hormuz does not resume in any significant and stable way within the next three weeks, systemic jet fuel shortage is set to become a reality for the EU.”
ACI Europe also uses the letter to urge the EU to set up a monitoring system which would help airlines co-ordinate a response, adding: “There is for now no EU-wide mapping/assessment and monitoring of jet fuel production and availability.
“A supply crunch would severely disrupt operations and air connectivity, with the risk of harsh economic impacts for the communities affected and for Europe in case of systemic shortage of jet fuel.”
Similarly, a spokesman for Airlines for Europe (A4E) adds it is in contact with relevant EU policy stakeholders as it seeks to impact of the war on jet fuel costs.
Measures raised include further legal clarity on slot regulation, the temporary suspension of the Emissions Trading System which taxes CO2 emissions, scrapping other aviation taxes and reducing VAT on domestic tickets.
Easing the impact
In the meantime, should the situation not improve, Strickland says Europe’s airlines will already have plans in place aimed at minimising disruption for consumers.
He adds: “They will prioritise making the best use of their capacity to whatever extent they can and will then look at flights on a rank scale taking into account those factors while impacting the least number of people possible and protecting the most revenue.”
Stanton agrees, saying: “If the situation worsens to the point that airlines need to remove flying from their schedules, I expect the first reductions to be in the least commercially resilient services rather than in the highest-demand core trunk routes.
“That usually means lower-frequency long-haul services, marginal seasonal routes and destinations where yields are weaker or where there are practical alternatives through partner hubs.
“Airlines generally try to protect their strongest business routes and their densest short-haul networks for as long as possible, because those are often the easiest services to keep full and to justify commercially.
“On fares, the direction would almost certainly be upward, but the size of the increase would vary significantly by market. Any estimate would depend on how long elevated fuel prices persist, how much hedging protection airlines have in place, and how much capacity is removed.
“In broad terms, passengers should expect fare pressure rather than a neat, uniform surcharge. Where capacity tightens, and demand remains firm, prices could rise quickly, particularly on long-haul sectors where fuel represents a larger share of operating cost.”
Any increase in airline tickets could further disrupt the European market which has already seen hoteliers warned against putting up prices this summer as customers avoid the Middle East over the summer.
And while it is good that the industry is preparing for the worst, Bowen also warns airlines against making too much noise now and then further exacerbating what is looking like a difficult summer market across Europe.
He says: “There’s some concern among the industry that there is a danger of talking this up as a serious issue and that will make some people think perhaps I better wait until June or July to make a booking because they might have run out of fuel and there may not be any holidays.
“We have to be very careful not to talk ourselves into a crisis when maybe there isn’t quite such a crisis as is being shouted about at the moment.”