Willie Walsh director general of IATA has warned that, given disruptions to Middle East refining capacity, jet fuel supply is going to take months to recover even as Iran has reopens access to the Strait of Hormuz.
Fuel remains the second largest expense for air carriers after labour and typically accounts for about 27pc of operating expenses according to the International Air Transport Association. Iran’s closure of the Strait of Hormuz as part of retaliatory moves in the war choked supplies of jet fuel globally. News of a ceasefire and the possibility of safe passage through Hormuz sent airline stocks soaring. Oil fell below $100 per barrel after US President Donald Trump revealed he had agreed to a two week ceasefire with Iran that was subject to the immediate and safe reopening of the Strait of Hormuz.
Willie Walsh director general of IATA told reporters in Singapore that while he expected crude oil prices to fall jet fuel costs were likely to remain slightly elevated due to the impact on refineries. He shrugged off comparisons to the Covid 19 pandemic which crippled global travel. This situation was more comparable to other shocks such as the downturns of 2008 09 or the aftermath of the September 11 attacks. Post 9 11 the recovery took about four months while in 2008 2009 it was probably 10 to 12 months.
Airlines across Asia have cut flights carried extra fuel from home airports and added refuelling stops as the Middle East conflict squeezed jet fuel supply piling pressure on an industry already hit by a doubling of jet fuel prices. Jet fuel prices normally move in tandem with oil prices but they have more than doubled since the Iran conflict far outpacing a 50pc rise in crude prices prior to the two week ceasefire news. Willie Walsh said the hit to capacity for Gulf carriers which last year accounted for 14.6pc of international capacity would be temporary.
Willie Walsh shared “If it were to reopen and remain open I think it will still take a period of months to get back to where supply needs to be given the disruption to the refining capacity in the Middle East.”
“This is not similar to Covid. This is not a crisis anywhere close to what we experienced in Covid. In Covid capacity reduced by 95pc because borders closed. We are nowhere near that.
Post 9 11 the recovery took about four months. In 2008 2009 it was probably 10 to 12 months. Some of that capacity will be replaced by airlines outside of the region but there is no way they can replace the entire capacity that was provided by the Gulf carriers. I fully expect the Gulf hubs to recover and recover quickly. It will take some time for refineries outside of the region to adapt and increase.”
“So there is refining capacity available once we get the crude oil flowing but it will take a little bit of time and with the crack spread elevated the way it is I think that provides an incentive for refineries to increase the production of jet fuel.”
