Submitted by Tsvetana Paraskova of OilPrice.com
Summer travel could be disrupted for millions of airline passengers as airlines pass on higher jet fuel prices onto air fares and cancel unprofitable routes, according to the global association Airports Council International.
The surge in jet fuel prices as a result of the Middle East crisis leads to higher air fares. Passengers should be prepared for higher ticket prices for longer, Stefano Baronci, the Airports Council International’s director general of Asia Pacific and Middle East, told Bloomberg in an interview published on Wednesday.
Supplies of the fuel from the Middle East cannot move past the Strait of Hormuz, while Asian refiners slashed exports amid reduced run rates and preference and/or orders to keep more supply for their respective domestic markets.
So, the recent crash in global exports of jet fuel – which is the most stressed barrel during the ongoing supply shock – was not unexpected.
Jet fuel supplies from Northeast Asia and India West Coast crashed and tightened the global jet fuel market so much that officials and airline executives started talking about fuel shortages in a few weeks’ time.
Fatih Birol, executive director of the International Energy Agency (IEA), warned in mid-April that Europe has “maybe six weeks or so” of remaining jet fuel supply.
But the Airports Council International’s Baronci dismissed concerns about shortages, noting that the high prices remain the key problem for the industry going forward. With higher air fares, demand destruction is inevitable and airlines could opt to slash more routes this summer, he added.
Earlier this month, Lufthansa Group, Europe’s biggest airline, said it expects the surge in jet fuel prices to cost it an additional $2 billion this year as the closure of the Strait of Hormuz “is leading to a shortage in kerosene supply and thus to a significant increase in kerosene prices.”
The war in Iran and the closure of the Strait of Hormuz have severely constrained Europe’s jet fuel supply, while jet fuel prices spiked to over $200 per barrel in April before easing to about $150 a barrel this month, which is still way above pre-war levels.