European airlines downplay fears of summer fuel shortage

Airlines must not charge customers extra fuel fees after they have already bought tickets, the EU warns on May 8, as the aviation sector feels the pain of high energy prices due to the Middle East war. AFP

#opinion

European airlines, airports and tour operators are striking a bullish tone on jet fuel supply despite one of the worst crises in decades, which has driven prices to double from pre-Iran war levels as the conflict snarls oil flows via the Strait of Hormuz.

The sector and regional officials are notably downplaying fears of shortages partly to reassure travellers ahead of the peak northern hemisphere summer and protect bookings at a critical time for earnings, say analysts.

The industry’s confidence contrasts with bleaker warnings from traders as the Strait of Hormuz, through which around a fifth of global oil flows, remains all but closed to shipping due to blockades by Iran and the United States as their conflict drags on.

The Gulf supplies around a quarter of Europe’s jet fuel.

“There are always people who want to take a stand—we’re running out of fuel. There’s absolutely no indication of that,” said Sebastian Ebel, CEO of Europe’s largest tour company, TUI, after presenting quarterly results last week Wednesday.

“We think the discussion on fuel is a little bit artificial, as we do see no shortages for the next few weeks. And I would also see no impact in the summer at all, except prices.”

Not everyone is so optimistic.

The International Energy Agency said last week Wednesday that global oil supply will not meet demand this year as the conflict wreaks havoc on Middle East production.

In some European regions, such as the Amsterdam, Rotterdam, and Antwerp area, jet fuel stocks are near record lows, according to LSEG Workspace data.

But Lufthansa CEO Carsten Spohr said the company’s fuel supplies were secured at least until early summer.

“Supplies and deliveries will be sufficient through mid-July. After that, visibility decreases somewhat,” said Spohr, adding that about a quarter of the group’s normal jet fuel came from the Gulf.

Half of that had been replaced with fuel from other sources, he said, with the rest drawn from reserves.

Ryanair CEO Michael O’Leary said late last month, “the risk of a supply disruption is receding”.

Airlines have been able to procure jet fuel from other countries, including the US and Nigeria, by paying a premium, analysts said.

“I don’t think we’re going to be running out,” said Wizz Air CEO Jozsef Varadi, citing jet fuel prices near $1,400 a tonne, about double pre-war levels, helping spur suppliers.

“That creates a lot of room to get creative.”

Airport operators have also built up reserves, with jet fuel stocks rising by more than 60% last month, according to aviation fuel tech firm i6 Group.

That has helped ease worries after some Italian airports flagged shortages last month.

“In the short term, we’re certainly not seeing any impact in supply,” said Gary McLean, managing director of Dublin Airport.

“We’re not hearing of any kind of concern on that for summer.”

Maintaining that message is critical for airlines to head off potential ticket cancellations, some analysts said.

“Summer is the key earnings season for airlines and, of course, they want to reassure customers that it is safe to book,” said independent aviation analyst John Strickland.

European officials remain positive, too.

“We don’t expect a very serious security of supply issue in the very short term,” European Union energy commissioner Dan Jorgensen told reporters on Wednesday.

“But we cannot exclude that there will be security of supply issues on a longer term. This all depends, of course, on the situation in the Middle East.”

-Khmer Times-