The conflict in the Middle East has wreaked havoc on the airline industry, in large part due to the steep increase in the price of fuel, including jet fuel.
The effective closure of the Strait of Hormuz, through which 20% of the world’s fuel supply transits, has already affected Asia, where flights have gotten more expensive due to fuel charges, and some carriers have cut the number of flights.
The problem will most likely spread to other parts of the world, however, warned Rico Luman, Senior Economist for Transport, Logistics and Automotive at ING.
Mr Luman told CNBC that the region to be affected next will be Europe. Although there are no shortages yet, the warning signs are there.
“Supplies from the Middle East have run out, and we need replacements. So as we speak, we’re reducing the stocks of existing jet fuel, and these need to be replaced,” he said.
Asia, which is heavily dependent on fuel from the Gulf, was the first to see constraints, as evidenced by airlines from Thailand and Vietnam, for example. However, because of the global jet fuel market, traders have been selling jet fuel to Asia rather than Europe, where prices are lower.
“These looming shortages are spreading across the world,” Mr Luman said, adding that the United States does not have the same problem because of the availability of fuel nearby.
Higher ticket prices
Another problem will be higher ticket prices, and Mr Luman does not believe this is just the beginning. Moreover, they are unlikely to come down.
The price of jet fuel has gone up by 80% since Feb 28, when the war began as the United States and Israel started bombing Iran. This means that airlines are now spending 20% more on overall costs.
Mr Luman explained that current ticket prices have yet to reflect the increase in jet fuel, which means that travellers will still be feeling the pinch of higher ticket prices in the time to come.
Last week, the Airports Council International (ACI) Europe said that jet fuel in the continent could run out in as little as three weeks, causing inevitable flight cancellations and disrupting the travel plans of millions of people, The Guardian reported.
“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,” the council wrote in a letter to the European Union’s energy and transport commissioners. /TISG
Read also: Airlines in Asia-Pacific raise fares as fuel costs go up due to Middle East war
