Europe Faces Jet Fuel Crisis as Summer Travel Approaches
As summer travel season approaches, Europe may face significant disruptions in air travel if airlines are unable to secure additional jet fuel imports. The International Energy Agency (IEA) has highlighted the growing concern over the region’s ability to meet surging demand for jet fuel, particularly as the ongoing crisis in the Middle East continues to impact global supply chains.
Fatih Birol, the head of the IEA, emphasized that jet fuel demand in August is typically 40% higher than in March. He warned that if supply remains at current levels, the challenge could become even more severe. “I very much hope that Europe will be importing energy,” Birol said during a conversation with Steve Sedgwick at CONVERGE LIVE in Singapore on Thursday.
The Strait of Hormuz, which previously carried roughly 20% of the world’s oil supply, remains closed, exacerbating the situation. Middle East refineries provide Europe with around 75% of its jet fuel, but production from these facilities is now nearly zero. “The rest is coming from some big Asian countries that have now export restrictions, and Europe is now trying to get it from the U.S. and Nigeria,” Birol added.
European carriers are more exposed than their U.S. counterparts because the continent relies heavily on fuel imports. Birol warned that Europe may need to take measures to “reduce the air travel” as a result. Some airlines, including Lufthansa and SAS, have already started reducing flights.
Birol recently warned that Europe may run out of jet fuel in six weeks, with analysts echoing similar concerns. “We are facing the biggest energy security threat in history,” he stated.
Economic Impact of Air Travel
Several European countries depend on the economic boost that comes from increased air travel during the summer season. According to ACI Europe, air connectivity generates 851 billion euros (nearly $1 trillion) in GDP for European economies and supports 14 million jobs.
However, rising fuel prices are causing significant challenges for the industry. Jet fuel prices increased by 103% by the end of March compared to the previous month, according to the International Air Transport Association.
“Airlines normally run at a single-digit operating margin and spend anywhere from 20 to 40% of the revenues on fuel,” Alex Irving, head of European Transport Equity Research at Bernstein, told [source]. “Rising jet fuel prices push the industry into operating losses.”
Flight Cuts and Cost Management
To remain profitable, airlines are required to increase ticket fares, but this risks alienating customers. As a result, airlines are cutting costs by reducing capacity and flights.
Some airlines have already started cutting flights and routes. German carrier Lufthansa is cutting 20,000 short-haul flights through to October, which will save 40,000 metric tons of jet fuel and reduce unprofitable flights. Scandinavian airline SAS is canceling 1,000 flights in April due to fuel costs, while Dutch airline KLM is reducing capacity by 80 flights due to rising kerosene costs.
Budget carrier EasyJet reported a headline loss between £540 million and £560 million ($675 million and $700 million) for the six months to March 31 and said it took on £25 million of additional fuel costs in March. The airline is hedging 70% of its summer fuel, with the price locked in at $706 per metric ton of jet fuel. The rest is still subject to volatile fuel price movements.
Shift in Travel Patterns
Stephen Furlong, senior transport and logistics analyst at Davies, said that airlines’ responses to rising fuel prices are about “shoring up profitability.” “They’re in some cases reducing frequencies and higher frequency routes, because some routes don’t make sense at these higher oil prices,” Furlong told [source], adding that airlines are also retiring older, less fuel-efficient aircraft earlier than planned.
Another measure is eliminating unprofitable parts of the business. Lufthansa announced on April 16 it was closing its subsidiary Lufthansa Cityline to reduce further losses of the loss-making airline.
Furlong said customers may vacation closer to home as uncertainty continues. “Possibly we’d see in the near term more demand for increased leisure trips closer to home, like Spain, Portugal, and France, as opposed to the eastern Mediterranean,” Furlong said.
