Uncertainty About Jet Fuel Dominates Airline Boardrooms

Fuel, fuel shortage, fuel price – those words were probably heard the most at the two-day CAPA Airline Leader Summit in Berlin this Thursday and Friday. Airline CEOs and CCOs were asked to look into their crystal ball and read the current situation of skyrocketing jet fuel prices and what this means for them and the industry. Of course, no one knows for sure, so the picture was blurred at the end of the last panel discussion. Since Israel and the US launched the war in the Middle East against Iran and Lebanon, and both responded with counterattacks and the closure of the Strait of Hormuz, oil prices have soared. Jet1A fuel has done so even more, surpassing $200 a barrel in recent weeks. The International Energy Agency (IEA) warned in mid-April that there could be a shortage of jet fuel in six weeks in some parts of the world. Airline association IATA took that seriously, with Director General Willie Walsh stating on April 17: “IEA's assessment of potential jet fuel shortages is sobering. We have also estimated that by the end of May, we could start to see some cancellations in Europe for lack of jet fuel.” Various airlines have responded by taking out flights from the network. United reduced capacity this month by five percent, SAS by four, and Lufthansa Airlines has cancelled 20,000 flights, although that is just one percent of its annual capacity. Opportunity But not everyone is in panic mode. Take Wizz Air’s Jozsef Varadi: “I am not taking out capacity, because I think others will take out capacity. That will create an opportunity for me. All others have higher costs than us, are more under pressure to remove capacity, and they are under-hedged. So actually, this is creating a strategic opportunity for us.” [caption id="attachment_191180" align="aligncenter" width="644"] Richard Quest - Jozsef Varadi (Wizz Air)[/caption] Wizz Air is hedged 70 percent and Varadi is happy about that. But remember that Wizz started hedging only in 2023. Many airlines present in Berlin said they are pretty well hedged for at least the second and third quarter. Air Serbia and Oman’s Salam Air aren’t, and neither are most carriers in the US. Air Serbia CEO Jiri Marek said that hedging would bear too heavily on the balance sheet of his small airline, while Salam Air’s Adrian Hamilton-Manns added that “it is a gamble. We will get through it.” Varadi is positive that there won’t be a shortage of jet fuel in the coming months. “But if that happens, of course, we are exposed to the unhedged 30 percent. But four weeks ago, I was told that the fuel situation in Europe is good for the next four weeks. Today, they say again that we are good for the next four weeks. Jet fuel prices go at $1.500 per metric ton. Fuel traders will find a solution to supply fuel to European parties. They may find it in the US, they may find other sources. What I see is that everyone seems to be waiting for the disaster to come, but I am sure we will overcome this.” His view was largely shared by the CEO of the leisure airline TUI, Tilman Felix Reinshagen. “When it comes to the expected fuel shortage, I have the feeling that we are in a kind of echo chamber. Everyone is repeating the same thing, but nobody knows.” Speaking to representatives from a key aviation fuel supplier that wishes to remain unidentified, even they don’t know the situation. “We make our production planning six weeks ahead, so we have only limited visibility.” Uncertainty They could be right, they could be wrong. “From what we gather from talking to some of the CEOs in closed sessions here, is that nobody actually knows. That is the big worry for airline management: the uncertainty of it all. The concern is that when we move a month down the line, will we be saying the same thing or will the fuel levels have fallen?”, said Richard Maslen, CAPA/Aviation Week analyst. “There is too much uncertainty right now to say one way or the other. And that is a really worrying thing for airlines, because they want to be able to have a strong summer, particularly here in Europe. The whole narrative of fuel, the price of fuel and the availability of fuel and what the industry can fly in the summer is worrying.” [caption id="attachment_191179" align="aligncenter" width="695"] Richard Maslen - CAPA[/caption] Listening to the airlines, all say that demand is unwavering and high. Travel patterns and flow might change to avoid the Middle East and go nonstop to Asia, but the appetite for travel hasn’t diminished. From what he sees, Maslen isn’t so sure. “The situation is already impacting bookings. Airlines see people not flying or flying alternative arrangements.” A shortage or not, Richard Maslen sees fuel prices as the dominant factor in the coming months. “We have been fortunate in the recovery from COVID that we have not talked about fuel for a couple of years, because it has been really stable. But fuel was always discussed at CAPA events, because it has such an impact on the bottom line of airlines. We said in December that fuel accounted for 26 percent of airline costs. We are already starting to say 30 percent. Some airlines said to us 35 percent, one said that it is hitting even the 50 percent mark. That is worrying; that is influencing what is happening moving forward. Routes will be cut, fares will go up, but there is only so far you can go in terms of putting the fare up and someone still willing to pay for that flight.” Scenario planning Maslen expects fuel hedging policies to become a dominant topic in airline boardrooms in the next few months. If that is not already the case. “We are doing a lot of scenario planning. We try to understand what might happen next. That’s essential, because we all know that we need to remain adaptable. We are stuck to fast-changing circumstances or looking out for every Tweet, as someone else said earlier”, said Simon Large, Chief Customer Officer at Finnair. The carrier is positive it can fly the full schedule this summer and is hedged well. “We are confident we can get the fuel we need for what we need to do. Beyond into the winter, that is another story.” His neighbour in Sweden, Denmark and Norway, SAS Scandinavian Airlines, has reduced capacity in April by three to four percent and will do the same in May. These reductions were mainly done within the Scandinavian network, while the global network has been mostly maintained. Paul Verhagen, CCO at SAS, expects there will be a bigger impact of the high energy costs. “People already feel it now at home, but a bit longer ahead in time, they will feel it in their wallets when they go shopping in the supermarket, or when interest rates go up. That might have an impact on late bookings. As we speak, we don’t see that yet, we still see a healthy demand.” That view was backed up by Virgin Atlantic CCO Juha Jaervinen: “The demand environment is extremely strong. From the UK to India, we increased our production this summer. The North Atlantic is also very strong right now. But if the situation is prolonged, of course, there will be more concerns.” Emirates President Sir Tim Clark has been in the eye of the storm, with his airline cutting back operations to almost zero immediately after the war started. Emirates is now operating at 65 percent capacity. Clark is not concerned that he will run out of fuel. “We have adequate supplies over here; we produce and refine our own Jet1A fuel. We know the effect of the closure of the Strait of Hormuz: 40 percent of jet fuel in Europe is imported, but only 20 percentage points comes through the Street.” “If this continues, there could be an issue in the long term with the price of fuel that will militate against demand growth. But whenever we have been in this situation before, the strength of the market is so strong that demand will surprisingly take price increases. If this is not prolonged, we remain optimistic that we can deal with it over the next two to four weeks.” CAPA’s Richard Maslen says that “adaptability beats everything. 2026 will be a challenging year. For those willing to adapt, it will be rewarding.”

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