Airlines cut flights and hike fares as fuel prices surge

Airlines cut flights and hike fares as fuel prices surge

Jet fuel prices have spiked sharply, prompting several airlines to adjust their schedules and raise ticket costs. Air India and Air New Zealand are among the carriers implementing these changes, citing the ongoing US-Israeli conflict with Iran as a key driver. Global airlines have also faced pressure, with analysts predicting more cancellations and fare increases as the situation evolves.

The European jet fuel benchmark reached a record high of $1,838 (£1,387) per tonne last week, compared to $831 before the war began. This surge has forced carriers to explore emergency strategies to manage the increased operational costs, which often consume 20-40% of their budgets.

Supply chain disruptions in the Middle East

The Gulf region, responsible for about 50% of Europe’s aviation fuel imports, has become a focal point of the crisis. Iran’s closure of the Strait of Hormuz, in response to US and Israeli strikes, has significantly impacted fuel deliveries. Middle Eastern refineries, crucial to global supply, are now under strain, with the Al-Zour facility in Kuwait alone contributing roughly 10% of Europe’s jet fuel needs, per Energy Intelligence.

Many airlines in Asia have begun trimming services and raising fares. Japan and South Korea, reliant on Middle Eastern energy, have seen severe disruptions. China Eastern Airlines raised domestic surcharges, while Korean Air entered emergency operations mode. In the US and Scandinavia, United Airlines and SAS have also cut routes and increased prices.

Adapting to fuel cost challenges

Air New Zealand has already reduced flights, targeting major hubs like Auckland, Wellington, and Christchurch. Smaller airports remain unaffected, though most customers impacted by cancellations are offered alternative travel options on the same day, as stated by the airline’s spokesperson. “Jet fuel prices are more than double what they would normally be,” they added.

Air India is modifying its fuel surcharge structure, switching to a distance-based model for domestic flights. It has also raised international surcharges, attributing the changes to “one of the most challenging fuel cost environments in recent years.” British Airways owner IAG and EasyJet have managed to avoid immediate cuts, as they secured fuel at pre-war prices. However, Ryanair’s Michael O’Leary warned that supply disruptions could intensify in May if the conflict persists.

“Starting from an already tight market, the current lack of Middle East jet fuel exports is worsening the situation,” said Mick Strautmann, an analyst at Vortexa. “Given global jet fuel exports are at their lowest in four years, the same level of demand will not be sustainable if disruptions continue, meaning airlines will likely raise prices further and cut flights.”

“Europe is not close to running out, as jet fuel is produced domestically and stocks should be manageable in April,” noted George Shaw, senior insight analyst at Kpler. “But there may be some localised issues in May as the drop in imports becomes more pronounced.”