The head of the global airlines body has warned that jet fuel costs are likely to remain elevated for months even if Iran reopens the Strait of Hormuz, as damage to Middle East refining capacity means supply cannot recover overnight despite the ceasefire.
Willie Walsh, director general of the International Air Transport Association (IATA), told reporters in Singapore on Wednesday that while he expected crude oil prices to fall following the two-week US-Iran truce, jet fuel costs would lag behind due to the impact on regional refineries.
“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,” Walsh said.
Jet fuel prices have more than doubled since the Iran conflict began, far outpacing a 50% rise in crude prices prior to the ceasefire announcement. Fuel is the second-largest expense for airlines after labour, typically accounting for around 27% of operating costs, according to IATA.
Walsh dismissed comparisons to the COVID-19 pandemic, which reduced global aviation capacity by 95% as borders closed. “This is not similar to COVID. This is not a crisis anywhere close to what we experienced,” he said, drawing a closer parallel to the downturns of 2008-09 and the aftermath of the September 11 attacks. Post-9/11 recovery took around four months, he noted, while the 2008-09 downturn took ten to twelve months.
Airline stocks surge on ceasefire news
News of the truce and the prospect of restored Hormuz passage sent airline stocks sharply higher across Asia and Europe. Australia’s Qantas jumped more than 9%, India’s IndiGo soared as much as 10%, Cathay Pacific climbed 5% and Air New Zealand rose over 4%. In Europe, Wizz Air and Air France-KLM climbed around 14%, while Lufthansa, Finnair, IAG and Ryanair gained between 8% and 10%.
Walsh said Gulf carriers — which accounted for 14.6% of international aviation capacity last year — would recover quickly once conditions normalised, though he acknowledged their capacity could not be fully replaced in the interim by carriers outside the region.
On the path to supply recovery, Walsh pointed to India and Nigeria as countries with refining capacity that could increase output of refined products in the short term, and said he expected China and South Korea to resume exports of refined products once crude flows resumed. He added that elevated refinery margins — known as crack spreads — provided a commercial incentive for refineries to ramp up jet fuel production.
“There is capacity available once we get the crude oil flowing, but it’ll take a little bit of time,” he said.
(Reuters)
Read more: