LONDON, April 29 (Reuters) – European airlines are facing their biggest challenge since the COVID-19 pandemic as the Iran war pushes up jet fuel prices and buffets travel through the Middle East, casting a shadow over the summer holiday season.
Carriers have been largely riding out the crisis with hedges that have tamed costs even as the price of jet fuel has risen nearly 84% since the start of the conflict on February 28, but they could face shortages if the war does not end soon.
Get a daily digest of breaking business news straight to your inbox with the Reuters Business newsletter. Sign up here.
“There is a risk that we’ll see rationing of fuel supply, particularly in Asia and Europe,” Willie Walsh, head of the International Air Transport Association, told Reuters on Tuesday, while adding that supply remained robust for now.
Walsh said, however, that the situation was not yet as bad as the disruption caused by the COVID-19 pandemic in 2020, which led to travel demand plummeting and hundreds of billions of dollars in losses for the aviation sector.
“I think COVID was on a completely different scale,” Walsh added. “What we’re seeing here is, in effect, a cost issue for the airlines. The underlying demand for aviation remains robust, and that’s a positive.”
JET FUEL PRICE HEDGES START TO RUN OUT
The war has hit airline shares, with on-again-off-again peace talks to end the conflict and re-open the critical Strait of Hormuz to normalize global oil and gas flows in what is the worst energy crisis in decades.
Airlines are now warning about their hedges – which help lock in set prices – running out, with outlooks increasingly murky as people delay booking travel or make plans closer to home to avoid potential disruption and higher fares.
Sweden’s Energy Minister Ebba Busch on Tuesday fired an “early warning” about potential jet fuel shortages despite good current supply, cautioning Swedes to think through travel plans.
Ryanair (RYA.I), opens new tab CEO Michael O’Leary, however, played down concerns. “We think the risk of a supply disruption is receding,” he told Reuters, citing conversations with suppliers across Europe earlier in the week.
European budget airline Wizz Air (WIZZ.L), opens new tab CEO Jozsef Varadi said on Monday summer bookings were strong. However, easyJet (EZJ.L), opens new tab and tour operator TUI (TUI1n.DE), opens new tab announced drops in forward bookings and issued profit warnings in recent weeks.
Varadi, meanwhile, cautioned that even an end to the conflict would not quickly resolve high fuel prices.
“Even if the war is stopped in Iran, I don’t think this is going to put the fuel price back to what it used to be two months ago,” he told reporters in London.
Air France-KLM (AIRF.PA), opens new tab, British Airways-owner IAG (ICAG.L), opens new tab and Lufthansa (LHAG.DE), opens new tab are set to report first-quarter results starting this week. Between them they have raised prices and cut flight capacity in response to the war.
