Because of the war on Iran, airlines are facing a aviation fuel crisis

Dubai, United Arab Emirates - If you think the summer travel season looks bad, brace yourself, it's about to get even worse. Due to the rise in air ticket prices and fees due to the war on Iran, airlines in Europe and Asia, many of which depend on importing jet fuel, face the possibility of a shortage in supplies, which increases the possibility of canceling flights and reducing schedules.

As for the United States, it is not in immediate danger of running out of jet fuel, although the global shortage is pushing up fuel prices for US airlines. These companies have already begun to cut back on low-cost offers and lower-profit flights, likely to lead to higher airfares, especially during the summer months.

Even if the United States and Iran reach an agreement today to reopen the Strait of Hormuz, the fate of summer travel has been sealed. Airlines plan their routes and determine ticket prices months in advance.

For example, United Airlines has reduced its previously planned flight schedule by about 5% over the next six months. Airlines and their customers are unlikely to see any improvement before the peak of summer, if at all.

This is because it takes months to restore normal supplies of oil and jet fuel. “It will take until July at a minimum, which is probably an optimistic estimate at this point,” said Matt Smith, senior analyst at energy consulting firm Kpler.

For its part, the International Energy Agency stated in a statement that "several European countries may begin to face a shortage of jet fuel during the next six weeks." Fuel is the second largest cost for airlines after labor.

A single-aisle commercial airliner consumes about 800 gallons of jet fuel per hour, while wide-body aircraft consume larger amounts. The four largest U.S. airlines, United Airlines, American Airlines, Delta Air Lines and Southwest Airlines, spent about $100 million a day on average on fuel last year.

These costs have risen significantly since the war began. Delta reported last week that it may spend an additional $2 billion on fuel this year, despite having its own refinery.

United Airlines may spend an additional $11 billion if the situation continues, according to what its CEO Scott Kirby told employees last March. According to Deutsche Bank data, real-time ticket prices to popular tourist destinations, such as flights from the United States to the Caribbean, rose by 74% compared to the beginning of this month, while prices for flights to Hawaii from the mainland rose by 21%.

However, American airlines are not as worried about the shortage as their counterparts, as the United States is the largest oil producer in the world and one of the leading exporters of jet fuel. But some other major exporters, such as Kuwait and Bahrain, have had their exports disrupted by the closure of the Strait of Hormuz, according to data.

More than 20% of the world's seaborne jet fuel supply passed through the strait last year, with more than two-thirds of it going to Europe. Much of the world's jet fuel is refined in Asia, and South Korea is the largest exporter.

But much of the crude oil used by Asian countries comes from the Middle East. Willie Walsh, Director General of the International Air Transport Association, explained that Asian countries have already begun to reduce aviation fuel exports, which may increase pressure on fuel prices in the United States.

Even if the strait were to reopen permanently soon, it would take weeks for the detained shipments of oil and jet fuel to reach Europe and Asia, as well as time to restart production interrupted by the war. Low-cost Spirit seats are the first victims High fuel prices could be disastrous for struggling airlines.

Spirit Airlines has filed for bankruptcy twice in the past 18 months, and days before the war broke out, it had announced a plan to emerge from bankruptcy by the summer. But the company warned in its annual financial report last March that rising fuel costs would have an “immediate and significant negative impact” on its results, and could lead to its agreements with lenders faltering and pushing it towards liquidation.

Emerging low-cost airlines have also faced financial difficulties since the pandemic. Fitch Ratings warned that “financially weaker companies may be unable to withstand these combined pressures and may default or return aircraft early.”

The exit of some of these companies from the market may reduce the number of low-cost flights, which will raise prices in general. Major airlines have already begun to reduce their flight schedules and focus on more profitable routes.

With fewer seats available, the prices for the remaining ones are likely to rise. United Airlines' Kirby added: "There's no point in operating flights that will lose money and not cover the cost of fuel."