The Impact of Rising Jet Fuel Prices on Air Travel
A significant increase in jet fuel prices is raising concerns about the potential impact on air travel, especially as the summer holiday season approaches. Analysts warn that these price hikes could lead to higher costs for passengers and even result in flight cancellations if supply disruptions continue.
The surge in prices has been driven by recent conflicts in the Gulf region, following US and Israeli air strikes on Iran. These events have disrupted supplies of aviation kerosene, causing its cost to rise by over 80%. The Gulf region is a critical source of aviation fuel, supplying approximately 50% of Europe’s imports. Much of this fuel passes through the Strait of Hormuz, which has effectively been closed due to the ongoing tensions.
This week, Wizz Air reported that the conflict would reduce its annual profit by €50 million ($58 million; £43 million), with rising jet fuel costs being a major factor. Before the air strikes, the price of north-west European jet fuel was $830 per tonne, but it has now jumped to more than $1,500. This marks the highest prices seen since 2022, during Russia’s invasion of Ukraine.
Middle Eastern refineries play a crucial role in the global supply of jet fuel. For example, the Al-Zour refinery in Kuwait alone provides roughly 10% of Europe’s jet fuel imports, according to Energy Intelligence. Fuel typically accounts for 20-40% of airlines’ operating costs, and many carriers use financial derivatives to hedge against price fluctuations. This process, known as hedging, allows airlines to secure fixed or capped prices for fuel months or even years in advance.
Several major airlines, including British Airways, Virgin Atlantic, EasyJet, and Ryanair, are known to have used hedging strategies. However, some large US carriers have historically avoided this approach and may be more vulnerable to short-term price increases.
Fitch, a ratings agency, recently noted that most EMEA (European, Middle Eastern, and African) carriers maintain high levels of fuel-hedging coverage. Hedge levels for the next three months range from around 50% to over 80%, according to Fitch.
An EasyJet spokesperson stated that the airline is not currently affected by higher fuel prices. Similarly, Ryanair’s CEO, Michael O’Leary, claimed that the airline is well hedged against rising fuel costs and that these increases will not affect their fares.
However, James Noel-Beswick, head of commodities at Sparta Commodities, warned that physical shortages could still cause serious problems. Even airlines that have hedged their fuel needs may face challenges if Asian refineries, which often supply alternative sources, receive less crude oil from the Gulf. This could lead to reduced production rates and force airlines to scramble for fuel from other sources.
Noel-Beswick predicted that the situation could lead to flight cancellations or delays within weeks rather than months. He also emphasized that higher jet fuel prices could result in increased airfares during the summer season.
Jane Hawkes, an independent consumer travel expert, agreed that rising fuel costs could lead to pricier airfares. She explained that airlines often incorporate fuel costs into their pricing strategies. If these costs remain high, fares may increase as the summer holidays approach.
Hawkes added that passengers who have already booked flights should not face unexpected fuel surcharges. She stressed that the price paid when booking a flight should be the final price and should be honored.
As the situation continues to evolve, travelers are advised to stay informed about potential changes in airfare and flight availability. The ongoing conflict in the Gulf region remains a key factor in determining the future of air travel costs and operations.
