Air travel’s worst crisis in years lurched deeper on Tuesday as Qantas Airways warned of spiralling costs, Lufthansa said it may have to ground planes and Virgin Atlantic flagged a looming supply crunch, with the Iran conflict squeezing fuel supplies.
The war has upended routes between Asia and Europe that relied on Gulf hubs, while a doubling of jet fuel prices and tightening of supplies are hitting airlines hard. Since the U.S.-Israeli strikes on Iran began on February 28, carriers have hiked air fares, introduced fuel surcharges and cut routes.
Underscoring efforts to preserve cash, Qantas has delayed a planned share buyback, citing higher and volatile fuel prices, one of the first major carriers to stall shareholder returns.
Meanwhile, Lufthansa (LHAG.DE), opens new tab CEO Carsten Spohr warned that jet fuel supplies will remainconstrained, driving up costs.
“Kerosene will remain in short supply and therefore more expensive for the rest of the year,” Spohr told German newspaper Frankfurter Allgemeine Zeitung.
Lufthansa has not yet grounded planes due to shortages but this “may be unavoidable” as kerosene availability is already critical at some airports, particularly in Asia, he said.
In South Korea, low-cost carrier T’way Air (091810.KS), opens new tab plans to furlough some cabin crew without pay in May and June, a local report said, among the first carriers to reduce staffing.
A two-week ceasefire has provided little relief with the Strait of Hormuz still shut, removing roughly a fifth of global oil and liquefied natural gas supplies from the market and refineries will take time to repair damage inflicted on them.
“Despite the pause in the conflict we remain concerned about jet kerosene supply and price increase,” UBS analyst Jarrod Castle said in a note on Tuesday, adding that December jet kerosene futures prices are still up more than 50% year-on-year.
Fuel, typically airlines’ second-largest cost after labour, accounts for about 27% of operating expenses. Prices have more than doubled since the conflict began, far outpacing a roughly 50% rise in crude prices before the ceasefire.
The turmoil may spur consolidation, with stronger airlines gaining share from weaker rivals, analysts and executives said.
Reuters reported on Monday that United Airlines (UAL.O), opens new tab CEO Scott Kirby pitched the potential for merging with American Airlines (AAL.O), opens new tab days before the U.S.-Israeli strikes on Iran.
EU AIRLINES URGE BRUSSELS TO STEP IN
Flight capacity, in particular from the Middle East but also into Europe, has shrunk and is not projected to recover to pre-conflict levels anytime soon, analysts said.
Virgin Atlantic CEO Corneel Koster said in an interview with the Financial Times that the airline has aboutsix weeks of secure jet fuel supplies before the outlook gets more uncertain.
And European airlines on Tuesday urged Brussels to step in with emergency measures to cushion the impact, including EU-level kerosene purchasing, a temporary suspension of the bloc’s carbon market for aviation and scrapping certain aviation taxes.
Industry group Airports Council International Europe (ACI) warned last week that Europe could face a systemic jet fuel shortage in three weeks.
Several carriers, including SAS, are not hedged, leaving them fully exposed to soaring fuel costs. Delta Air Lines (DAL.N), opens new tab last week said its jet fuel bill this quarter would be some $2 billion more than last year.
While Qantas has hedged much of its crude exposure, it remains significantly exposed to the spike in jet fuel spreads.
To offset rising costs, the Australian flag carrier is raising fares and shifting capacity toward stronger routes such as Europe, where demand remains firm, while trimming domestic capacity by about 5 percentage points in the June quarter.
Lufthansa’s Spohr said record revenues on Asian routes were also helping offset the impact of rising kerosene costs.
But the airline has prepared contingency plans, including cutting its capacity by 2.5% or 5% and grounding 20 to 40 older, less fuel-efficient aircraft earmarked for early retirement.
Read the full article by Roushni Nair, Sneha Kumar and Kate Abnett / Reuters
