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The Iran war caused oil prices to skyrocket by up to 70% in just weeks, but it will take a matter of months before jet fuel prices return to their pre-conflict levels, warned the head of the International Air Transport Association (IATA) representing global airlines.<\/p>\n
Jet fuel makes up 27% of an airline\u2019s operating budget, according to IATA, making it a carrier\u2019s second-largest expense. Though a tentative ceasefire between the U.S. and Iran has introduced the possibility of the reopening of the Strait of Hormuz\u2014the critical chokepoint through which 20% of the world\u2019s oil normally flows\u2014throttled refining capacity in the Middle East will present a lasting challenge for jet fuel supply, IATA director \u200bgeneral Willie Walsh told reporters this week.<\/p>\n
\u201cIf [the Strait of Hormuz] were to reopen and remain open, I think it will still take a period of months to get back to where supply \u200bneeds to be given the disruption to the refining capacity in the Middle East,\u201d Walsh said.<\/p>\n
Although there\u2019s strategic reserves of crude, which can soften the blow of production disruptions, the same strategic reserves do not exist for jet fuel, he added.<\/p>\n
According to S&P Global Energy data, as of March 22, global refining capacity shrunk 10% to 12% as a result of closed operations in the conflict zone, halting the refining of more than 2 million barrels per day in the Middle East. The supply chain disruptions have sent energy costs soaring. Airline CEOs including Delta\u2019s Ed Bastian and United Airlines\u2019s Scott Kirby said the conflict has increased operating costs by about $400 million, respectively.<\/p>\n
Airlines have already taken action to offset these hikes, with United increasing luggage check costs by $10, its first change in bag fees in two years. Malaysian low-cost airline AirAsia X Fares increased airfares by up 40% and increased fuel surcharges by 20%.<\/p>\n
Historic precedents<\/p>\n
To be sure, the oil supply disruptions today are not comparable to the pandemic, when global aviation capacity was reduced by 95% as a result of closed borders, according to Walsh. He said the ceasefire has already led to a reduction in crude price. (As of Thursday, Brent crude is about $97 per barrel, down from $108 on Tuesday.)<\/p>\n
Instead, the IATA director compared the moment to the disruptions following 9\/11 or the Great Recession, when passenger numbers and capacity took months, not years, to return to pre-disaster levels.<\/p>\n
\u201cThis is not similar to COVID. \u200bThis is not a crisis anywhere close to what we experienced (in COVID),\u201d he said. \u201cPost-9\/11, the recovery took about four months. In 2008-2009 it was probably 10 to 12 months.\u201d<\/p>\n
Still, the disturbances to the energy sector have left aviation leaders feeling as though there\u2019s no quick fix. Thai Airways CEO Chai Eamsiri said the current oil shock is the worst of his nearly 40-year career.<\/p>\n
\u201cThis is the worst one,\u201d he said at the IATA event. \u201cThis time is about the infrastructure that was destroyed. It will take some time to call back all the supply, the facilities, the refinery, the infrastructure.\u201d<\/p>\n
United\u2019s Kirby said last month he didn\u2019t expect oil to fall below $100 per barrel until 2027, but even if the worst wasn\u2019t true, it was still worth preparing for.<\/p>\n
\u201cHonestly, I think there\u2019s a good chance it won\u2019t be that bad,\u201d he said in a letter to employees. \u201cBut\u2026there isn\u2019t much downside for us to prepare for that outcome.\u201d<\/p>\n
#IATA #director #months #jet #fuel #prices #return #preIran #war #normal<\/p>\n","protected":false},"excerpt":{"rendered":"
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