Jet fuel supply concerns grow with Iran war as airlines cut flights

The rising price of jet fuel is not the airline industry’s only problem. Now the question is whether it will be enough.

The price of jet fuel in the US has nearly doubled since the US and Israel attacked Iran on February 28; It went from $2.50 per gallon on February 27 to $4.88 per gallon on April 2; The increases in other regions are even sharper. Effectively closing the Strait of Hormuz blocks the supply of both crude oil and refined products such as jet fuel, causing prices to rise further.

This situation forces airlines to consider reducing their flights, especially international flights.

Carsten Spohr, CEO of Germany’s Deutsche Lufthansa, told employees in a webcast last week that the carrier has assigned teams to prepare contingency plans, including for drops in demand or shortages of jet fuel due to war in the Middle East, a spokesman said. These plans may include grounding some aircraft.

The US produces a lot of jet fuel and is not as exposed as other regions compared to Europe and parts of Asia. But some U.S. airlines may face shortages of international travel as planes fill up locally.

United Airlines Chief Executive Officer Scott Kirby told reporters late last month that the airline, which provides the most service to Asia among U.S. airlines, would have to reduce its flights there. He also said it was “not impossible” that airlines would have to collectively reduce service in this area.

As the price of jet fuel rises, this could become more severe in parts of the U.S. that are not connected by pipelines, he noted.

“There is not enough refining capacity, and so fuel prices going forward and ahead are more sensitive to supply weakness on the West Coast than elsewhere in the country,” he said.

Kirby told employees in early March that the airline was preparing for oil to remain above $100 a barrel through 2027 and would cut some flights in the near term.

“To be clear, there is no change to our long-term plans for aircraft deliveries or our overall capacity for 2027 and beyond, but there is no point in burning cash that cannot cover these fuel costs in the near term,” he said in a message to employees on March 20.

Airlines generally cut some flights for the coming months, but they frequently adjust schedules throughout the year based on demand, flight availability or other issues.

Domestic capacity at U.S. carriers rose 2.1% in the second quarter, from the 2.3% growth expected the previous week, while total capacity is expected to increase 1.1%, down from 2.4% in the week ending March 20, UBS reported Monday.

“We expect further capacity cuts in the coming weeks,” UBS said.

Airline executives said travel demand has been strong so far, but fuel shortages and price increases are a headache for carriers and passengers alike as the busy summer travel season approaches.

Fuel is airlines’ biggest expense after labor, and carriers are already increasing fees like airfares and checked bags to offset the additional cost.

Investors will be waiting to learn more about how the rise in jet fuel could affect the industry as airline earnings kick off on Wednesday. Delta Airlines. This carrier has a refinery, so it can benefit from jet fuel sales.