The threat to summer holidays looming from jet fuel shortages
For airlines, fuel is a major expense. It typically accounts for 25-30% of their operating costs, according to the International Air Transport Association (IATA). As a result, if the price goes up, it can have a major impact on their profitability.
In Europe and Asia, it is common for airlines to use hedging strategies to limit their exposure to rising prices, buying fuel or other oil products at a fixed or capped cost in advance.
However, this does not offer complete protection. EasyJet, for example, hedged 80% of its fuel supply for the first half of the year at $717/tonne - but finding the remainder at prevailing prices cost the airline an extra £25m in March alone.
Other carriers, notably US ones, have preferred not to hedge at all in recent years, because it can prove expensive when prices fall. That has left them heavily exposed to the current crisis.
Some airlines - such as Air France KLM, Air Canada and SAS - have already responded by cutting their summer schedules. The German group Lufthansa said earlier this month it would remove 20,000 flights between now and the end of October.
"If a route was marginally profitable before this crisis came along, it is now firmly under water and losing money in a big way," says Jonathan Hinkles, a former chief executive of the regional carrier Loganair and current CEO of Skybus.
It is important to note that although Europe is highly dependent on Middle Eastern sources, it does get fuel elsewhere. Cargoes come from East Asia, particularly South Korea and Taiwan, as well as from the US and Nigeria.
However, East Asian refineries rely heavily on supplies of crude oil from the Middle East, which have been restricted by the war – and that has curbed the amount of jet fuel available for export.
Imports from the US meanwhile, while growing, have been constrained by the fact that the US aviation market uses a different fuel specification to most of the rest of the world.
It uses Jet A, which has a higher freezing point than the Jet A1 supplied here. Not all US refineries that make jet fuel are currently capable of producing Jet A1, limiting the extra that can be shipped across the Atlantic.
Until last year, India was a major source of fuel as well. However, the EU's import ban on refined products made from Russian crude oil had a big impact on supplies. "In practice, what that led to was the removal of Indian jet fuel from the European market en masse. It just became too complicated," explains Amaar Khan of Argus Media.
As a result, reserves have been dwindling. Stocks at the key Amsterdam-Rotterdam-Antwerp hub are at their lowest level in six years, according to the procurement intelligence firm Beroe.
Before the conflict, Europe as a whole had about 37 days' supply available. Now, this is likely to have dropped to 30 days, the firm says. 23 days is the critical point at which the IEA believes some airports would run out of fuel.
Beroe's analysis suggests there is a "high risk of shortages if Hormuz disruption continues". Mr Khan agrees. "I think there is a huge risk," he says, although he points out that the effects of any shortage would not be felt equally. "Larger demand hubs, big airports are probably going to be prioritised over smaller demand hubs," he explains.
Wizz Air's CEO József Váradi is optimistic that extra supplies will be found, because there is "a lot of room to be creative" when prices are so high. "I don't think we're going to run out of fuel," he told reporters in April. But he agreed that shortages would not be felt equally across Europe.
"This is not going to be like every single European airport is going to be hit on the same minute of the same hour. This is going to be a mess," he explained. "There are multiple suppliers, and multiple suppliers might be in different positions, so you may not get jet fuel from one guy, but you may get jet fuel from another guy."
"But the ultimate measure, obviously, is that if there is really no fuel anywhere, then you will have to cancel [flights]."
Addressing the structural reasons why the UK is so dependent on imports, meanwhile, is likely to be trickier. Back in the 1970s, the country had 18 refineries - but that's now down to four.
"I think there is probably a point in saying, actually, do we need more resilience from a homegrown perspective in terms of our capacity in the UK to be able to refine a higher proportion of our fuel?" says Skybus' CEO Jonathan Hinkles.
The question is how that could be done. The remaining refineries have already been asked to prioritise jet fuel production. But according to Amaar Khan, "this doesn't happen overnight, and doesn't result in a significant increase in jet fuel output".
One option could be to boost local production of Sustainable Aviation Fuel (SAF). A synthetic fuel, it can be derived from wastes, such as old cooking oil and agricultural residues; from dedicated energy crops; or from using renewable energy to convert water and carbon dioxide into liquid hydrocarbons known as e-fuels.
So far SAF, as the name suggests, has been promoted mainly for its environmental credentials. These can vary widely depending on the method used to make it, but in general burning SAF adds less carbon to the atmosphere than burning fossil fuels. Both the UK and the EU have mandates to significantly increase the amount of SAF used over the next 25 years.
However, the industry is in its infancy. There is relatively little SAF available at the moment, a large chunk of what we use comes from East Asia, and it is very expensive – typically trading at more than $1000 per tonne more than conventional fuel. Nevertheless, Hinkles believes if these problems can be overcome, SAF can help reduce our reliance on foreign imports.
"It really becomes a question of; can you actually get SAF? Can we scale up production of SAF at a meaningful rate in the UK or Europe to take over an increasing proportion of jet fuel supply?", he says.
Green campaigners agree. "Increasing SAF production won't eliminate jet fuel imports overnight," says Tom Taylor, UK policy manager for lobby group Transport and Environment.
"But by scaling it up, we can shift the source of aviation fuel from geopolitically sensitive fossil fuels to locally managed renewable grids and waste streams."
That would require investment on a large scale, however, and clearly remains a long way off.
In the short term, meanwhile, dark clouds are hanging over the industry. There seems little prospect of jet fuel prices coming down quickly, and if fears of a shortage prove justified, then the aviation industry and the travellers that rely on it are heading for a turbulent summer.
Read the full story at BBC ↗
Jet fuel is a major cost for airlines, typically representing a quarter to a third of operating expenses. Recent supply disruptions—stemming from Middle Eastern conflict, reduced Indian exports due to EU sanctions on Russian crude, and production constraints—have tightened European fuel availability. Storage at key distribution hubs has fallen to its lowest point in six years, with current reserves estimated at 30 days compared to 37 days before the crisis. Some large carriers have already reduced summer flight schedules to manage costs and fuel access. Smaller airports face greater risk than major hubs if shortages materialise. Airlines are using hedging strategies where possible, though this provides incomplete protection. Structural solutions—expanding domestic refining capacity or scaling sustainable aviation fuel production—require substantial investment and time to implement. In the near term, high prices and supply uncertainty present challenges for the industry.
Read the full story at BBC ↗
For airlines, fuel is a major expense. It typically accounts for 25-30% of their operating costs, according to the International Air Transport Association (IATA). As a result, if the price goes up, it can have a major impact on their profitability.
In Europe and Asia, it is common for airlines to use hedging strategies to limit their exposure to rising prices, buying fuel or other oil products at a fixed or capped cost in advance.
However, this does not offer complete protection. EasyJet, for example, hedged 80% of its fuel supply for the first half of the year at $717/tonne - but finding the remainder at prevailing prices cost the airline an extra £25m in March alone.
Other carriers, notably US ones, have preferred not to hedge at all in recent years, because it can prove expensive when prices fall. That has left them heavily exposed to the current crisis.
Some airlines - such as Air France KLM, Air Canada and SAS - have already responded by cutting their summer schedules. The German group Lufthansa said earlier this month it would remove 20,000 flights between now and the end of October.
"If a route was marginally profitable before this crisis came along, it is now firmly under water and losing money in a big way," says Jonathan Hinkles, a former chief executive of the regional carrier Loganair and current CEO of Skybus.
It is important to note that although Europe is highly dependent on Middle Eastern sources, it does get fuel elsewhere. Cargoes come from East Asia, particularly South Korea and Taiwan, as well as from the US and Nigeria.
However, East Asian refineries rely heavily on supplies of crude oil from the Middle East, which have been restricted by the war – and that has curbed the amount of jet fuel available for export.
Imports from the US meanwhile, while growing, have been constrained by the fact that the US aviation market uses a different fuel specification to most of the rest of the world.
It uses Jet A, which has a higher freezing point than the Jet A1 supplied here. Not all US refineries that make jet fuel are currently capable of producing Jet A1, limiting the extra that can be shipped across the Atlantic.
Until last year, India was a major source of fuel as well. However, the EU's import ban on refined products made from Russian crude oil had a big impact on supplies. "In practice, what that led to was the removal of Indian jet fuel from the European market en masse. It just became too complicated," explains Amaar Khan of Argus Media.
As a result, reserves have been dwindling. Stocks at the key Amsterdam-Rotterdam-Antwerp hub are at their lowest level in six years, according to the procurement intelligence firm Beroe.
Before the conflict, Europe as a whole had about 37 days' supply available. Now, this is likely to have dropped to 30 days, the firm says. 23 days is the critical point at which the IEA believes some airports would run out of fuel.
Beroe's analysis suggests there is a "high risk of shortages if Hormuz disruption continues". Mr Khan agrees. "I think there is a huge risk," he says, although he points out that the effects of any shortage would not be felt equally. "Larger demand hubs, big airports are probably going to be prioritised over smaller demand hubs," he explains.
Wizz Air's CEO József Váradi is optimistic that extra supplies will be found, because there is "a lot of room to be creative" when prices are so high. "I don't think we're going to run out of fuel," he told reporters in April. But he agreed that shortages would not be felt equally across Europe.
"This is not going to be like every single European airport is going to be hit on the same minute of the same hour. This is going to be a mess," he explained. "There are multiple suppliers, and multiple suppliers might be in different positions, so you may not get jet fuel from one guy, but you may get jet fuel from another guy."
"But the ultimate measure, obviously, is that if there is really no fuel anywhere, then you will have to cancel [flights]."
Addressing the structural reasons why the UK is so dependent on imports, meanwhile, is likely to be trickier. Back in the 1970s, the country had 18 refineries - but that's now down to four.
"I think there is probably a point in saying, actually, do we need more resilience from a homegrown perspective in terms of our capacity in the UK to be able to refine a higher proportion of our fuel?" says Skybus' CEO Jonathan Hinkles.
The question is how that could be done. The remaining refineries have already been asked to prioritise jet fuel production. But according to Amaar Khan, "this doesn't happen overnight, and doesn't result in a significant increase in jet fuel output".
One option could be to boost local production of Sustainable Aviation Fuel (SAF). A synthetic fuel, it can be derived from wastes, such as old cooking oil and agricultural residues; from dedicated energy crops; or from using renewable energy to convert water and carbon dioxide into liquid hydrocarbons known as e-fuels.
So far SAF, as the name suggests, has been promoted mainly for its environmental credentials. These can vary widely depending on the method used to make it, but in general burning SAF adds less carbon to the atmosphere than burning fossil fuels. Both the UK and the EU have mandates to significantly increase the amount of SAF used over the next 25 years.
However, the industry is in its infancy. There is relatively little SAF available at the moment, a large chunk of what we use comes from East Asia, and it is very expensive – typically trading at more than $1000 per tonne more than conventional fuel. Nevertheless, Hinkles believes if these problems can be overcome, SAF can help reduce our reliance on foreign imports.
"It really becomes a question of; can you actually get SAF? Can we scale up production of SAF at a meaningful rate in the UK or Europe to take over an increasing proportion of jet fuel supply?", he says.
Green campaigners agree. "Increasing SAF production won't eliminate jet fuel imports overnight," says Tom Taylor, UK policy manager for lobby group Transport and Environment.
"But by scaling it up, we can shift the source of aviation fuel from geopolitically sensitive fossil fuels to locally managed renewable grids and waste streams."
That would require investment on a large scale, however, and clearly remains a long way off.
In the short term, meanwhile, dark clouds are hanging over the industry. There seems little prospect of jet fuel prices coming down quickly, and if fears of a shortage prove justified, then the aviation industry and the travellers that rely on it are heading for a turbulent summer.
Read the full story at BBC ↗
Jet fuel accounts for 25-30% of airline operating costs according to the International Air Transport Association. Airlines in Europe and Asia commonly use hedging to protect against rising fuel prices. EasyJet hedged 80% of its fuel for the first half of the year at $717/tonne but paid an extra £25m in March for the remainder at prevailing prices. Air France KLM, Air Canada, SAS, and Lufthansa have announced schedule cuts in response to fuel costs. European jet fuel reserves at the Amsterdam-Rotterdam-Antwerp hub are at their lowest level in six years. Before the conflict, Europe had approximately 37 days of jet fuel supply; estimates now suggest this has fallen to 30 days. The International Energy Agency identifies 23 days as the critical supply threshold at which some airports would run out of fuel. Europe receives jet fuel from the Middle East, East Asia (South Korea and Taiwan), the US, and Nigeria. The UK had 18 refineries in the 1970s; it now has four. Sustainable aviation fuel currently costs more than $1000 per tonne above conventional jet fuel. If a previously marginal route loses profitability, it now risks significant losses. Larger airports will be prioritised over smaller ones if fuel shortages occur. The UK should consider increasing domestic refining capacity for resilience. Scaling sustainable aviation fuel production could reduce reliance on geopolitically sensitive fossil fuel imports.
Read the full story at BBC ↗
- Jet fuel accounts for 25-30% of airline operating costs; rising prices and supply constraints are pressuring profitability and forcing schedule cuts
- European jet fuel stocks have fallen to 6-year lows due to Middle Eastern supply disruption, reduced Indian exports, and production constraints, with reserves now estimated at 30 days versus a pre-conflict 37 days
- Airlines are pursuing hedging strategies and schedule reductions; longer-term solutions include increasing UK refinery output and scaling sustainable aviation fuel production, both facing significant technical and cost barriers