Jet fuel supplies are falling behind: What does it mean for airlines and travelers?

A looming jet fuel shortage in Europe and Asia could compound the Iran war’s impact on world travel within weeks if a fragile agreement to reopen the Strait of Hormuz collapses, making higher airfares and flight cancellations even more likely as the summer travel season approaches, reports AP.

Crude oil prices plunged Friday after Iran’s foreign minister said tankers and other commercial vessels could again pass unimpeded through the narrow waterway off the country’s coast that serves as a conduit for about one-fifth of the world’s oil and natural gas.

The oil market is expected to take months to recover from shipment disruptions, and fuel prices typically take longer to fall than prices for crude. In a sign of the conflict’s ongoing repercussions for airlines and their passengers, Air Canada said Friday it was canceling service to New York’s John F. Kennedy International Airport between June and October due to surging jet fuel costs.

Jet fuel — a refined kerosene-based oil product — is airlines’ biggest cost, making up about 30% of overall expenses, according to the International Air Transport Association. And jet fuel prices have roughly doubled since the war began. Shortages could start next.
How does jet fuel get to the plane?

Jet fuel is made from crude oil at refineries, which also create gasoline and diesel. Airlines generally buy jet fuel from refineries or fuel companies, like drivers buying gasoline from stations, but on a much larger scale. Jet fuel travels on ships and through pipelines and is stored by airlines at airports.

Purchasing is handled by airlines. If fuel supplies are running out in a region, that doesn’t necessarily mean there will be no flights. Some airlines might have more stored than others. But remaining flights are likely to be expensive, reflecting fuel costs.

Which regions could feel pain?

Asia-Pacific countries are the most reliant on oil and jet fuel from the Middle East, followed by Europe, Rousseau said. 
Most of Europe’s jet fuel is produced by European refiners, but about 20-25% of its supply is missing because of the war, Rousseau said.
To fill some gaps, the U.S. increased its exports of jet fuel to Europe considerably, sending about 150,000 barrels per day in April, or about six times the normal level, Rousseau said. Availability of jet fuel is less of an issue in the U.S., a major oil producer, he added.
How much is the world supply of jet fuel lagging?

The world is losing 10 million to 15 million barrels of oil a day due to the closure of the Strait of Hormuz, said Pavel Molchanov, senior investment strategist at investment firm Raymond James & Associates.
Even though the IEA has released 400 million barrels of oil from members’ emergency reserves, that won’t help in the short term, Molchanov added.

How will my travel be affected? 

Christopher Anderson, a professor of operations, technology and information management at Cornell University, said travelers should prepare for more than just higher airfares.

“This is no longer just a fuel-price story. For airlines, it is now a network-planning story,” he said. “Higher fuel costs matter, but so do longer routings, reduced scheduling flexibility and greater uncertainty about what demand will look like even a few weeks out.”

What are airlines doing? 

Dutch airline KLM and U.K. budget carrier easyJet told AP they weren’t experiencing current fuel shortages and didn’t comment further on the IEA’s warning.

U.S. carrier Delta Air Lines — which frequently flies to European destinations — said on Thursday that it was “aware of the potential jet fuel supply issue” on the continent and monitoring the situation. Delta, which bought a refinery in Philadelphia in 2012 to manage its largest expense, said it doesn’t expect any “near-term impact to our operations.”

How are prices affected? 

Other airlines have sounded the alarm about rising fuel prices, with some already passing along new costs to travelers, often embedded into ticket prices and add-on fees.

U.S. carriers Delta, United, American Airlines, Southwest Airlines and JetBlue have all increased checked baggage fees, for example, in recent weeks.