Iranian conflict impacts aviation fuel supply, the airline industry plunges into a crisis

Driven by the impact of the Iran war, fuel prices have surged and supply capacity has been strained. Some Asian airlines have entered emergency mode, and multiple airlines have been forced to scale back their expansion plans.

According to data from aviation consultancy Cirium, before the war, airlines had planned to increase capacity in April this year by 5.4% year over year. Now, that figure has been sharply cut to just 0.2%.

On Tuesday, South Korea’s national carrier sent an email to employees announcing it will shift into emergency mode and introduce cost-cutting measures to deal with soaring fuel costs.

Korean Air CEO Woo Ki-hong said: “We are concerned that our business performance targets for this year may be difficult to achieve—fuel’s forecasted price in April is as high as 450 cents per gallon, far above the 220 cents used when formulating business plans earlier.”

The airline noted that fuel originally accounted for about 30% of total operating costs; if oil prices remain high for the long term, this share may double. The company stated: “We are exhausting every cost-saving measure through emergency management, closely monitoring fuel supply, and beginning to adjust flight schedules.”

As South Korea’s second-largest airline and a unit of Korean Air Holdings, Asiana Airlines will cut four international routes between China and Cambodia and reduce a total of 14 round-trip flights in April and May, to protect profitability.

Cirium’s data shows that, excluding the China, Japan, and India markets, Asian airlines’ expected capacity increase in April has been reduced from 5.8% to 2.8%.

Richard Evans, senior consulting adviser at Cirium Ascend, believes that in the current environment, airlines’ top priority is to preserve cash. He expects airlines will first cut the routes with the weakest profitability, ground aircraft with poor fuel efficiency, and also postpone maintenance spending.

Asian airlines have an extremely high dependence on Middle East oil imports, making them especially vulnerable to disruptions in the Strait of Hormuz. The Gulf conflict has affected about one-fifth of global crude oil supply, and refined fuel products such as aviation jet fuel and diesel have surged in price as well.

Aviation jet fuel is difficult to store long term, making the impact even more pronounced—due to storage condition constraints, its shelf life is only about one year.

Since the outbreak of the conflict, the wholesale price of aviation jet fuel has doubled. Several regional airlines in the region, including IndiGo? Air? (multiple regional airlines), Cathay Pacific, Thai Airways International, Qantas, and others, have already announced price increases or added fuel surcharges to pass along the additional costs.

Industry experts have warned that oil prices still have room to move higher. Edward Morses, commodities strategy director at Hartree Partners, said: “Market supply will continue to tighten.”

He added that U.S. aviation jet fuel inventories from last week could support about 27.5 days, which is at a five-year high. However, this stock will be kept for domestic demand and will not be exported; with demand already tightening, the market situation is under strain.

With ongoing fears of shortages in Europe, executives at multiple airlines have already begun closely monitoring fuel supply on a daily basis. Two leading European airlines revealed that they currently hold only about 4 to 6 weeks of remaining buffer fuel supply.

According to reports, the last batch of aviation jet fuel imported from the Middle East by the UK is expected to arrive this week. In recent years, the UK has given up Russian fuel supplies; combined with a decline in local refinery capacity, at least half of its aviation jet fuel relies on Middle East imports.

Andrew Charlton, head of Aviation Advocate, a aviation consultancy, said that European airlines’ current hedging pressure is manageable and the risk of buying at low prices is relatively low, but prolonged fuel supply difficulties will inevitably trigger a crisis.

The International Air Transport Association had warned last year: due to the combined effects of domestic production cuts and increased import dependence, Europe’s aviation jet fuel supply has become even more fragile.

The UK Aviation Industry Association said that, so far, domestic airlines have not experienced fuel supply disruptions, and they are continuously coordinating with fuel suppliers and the government to track the situation.

A survey covering European airports, including in the UK, shows that 10% of surveyed airports face a high risk of fuel shortages. Oliver Jankovic, secretary general of Europe’s Airports International Council, said that although 86% of members reported that their fuel stocks are still at normal levels, there is enormous uncertainty in the current situation.

A former UK petroleum fuel importer trader disclosed that the standard emergency inventory of aviation jet fuel at UK conventional airports can support about two weeks; Luton Airport is similar (the airport did not respond to this).

Even if regions such as the United States still have excess production capacity, it cannot make up for Europe and the UK’s missing Middle East supply gap. The former trader said bluntly: “Now it’s every company for itself, with everyone too busy to look out for anyone else.”

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责任编辑：李肇孚