Jet fuel shortage looms as government scrambles to secure supplies
The government is scrambling to secure UK airlines’ emergency access to jet fuel as global shipments fall to their lowest level on record.
Global shipments of jet fuel have fallen to their lowest level on record, as the blockage to the Strait of Hormuz threatens to suffocate supply to the world’s airlines.
Under 2.3m tonnes of jet fuel and kerosene were shipped around the world last week, according to analysts at Kpler, marking the lowest level since records began in 2017.
Earlier this month, major UK carriers had warned they only have five or six weeks of supplies remaining, leaving Brits’ summer holidays in peril.
Prime Minister Keir Starmer said this week that summer holidays could be cancelled.
“I can see that, if there’s more impact, people might change their habits… where they go on holiday this year, what they’re buying in the supermarket, that sort of thing,” he told Sky News.
Darren Jones, chief secretary to the prime minister, said on Sunday that Brits could see higher flight prices for as long as eight months due to the Iran war.
FTSE 100-listed IAG, the owner of British Airways, has said it will hike prices to “reflect higher fuel costs”.
Last minute bookings
Other airlines, including budget holidaymaker Jet2, have refused to impose surcharges.
Jet2 boss Steve Heapy said holidaymakers “have every right” to enjoy their holidays without being hit by extra costs, but his firm said on Wednesday that fears around travel disruption are causing Brits to book trips at the last minute.
But the government is scrambling to prevent flights from being scrapped altogether, with ministers poised to give UK airlines permission to use a type of fuel which is currently used only by US carriers.
Airlines in Britain, Europe and most of the world use “Jet A-1” fuel, while planes in the US use “Jet A” fuel, which has the same specifications but a higher freezing point.
The two fuels can be used in any jet aircraft and a relaxation of the rules would provide a major boost to UK airlines as they hope to avoid cancelling flights.
The proposals, first reported by the i Paper, are set to be announced later this week.
Short sellers pounce
The past few weeks have seen London-listed airline stocks engulfed in chaos, as shares slumped on negative news around the Strait of Hormuz blockade – but jumped at signs of the trade route easing.
London-listed budget airline Wizz Air has been pounced on by short sellers since the conflict broke out, and it has cut profit guidance by around €50m since the war, taking forecasts to a €25m loss.
Easyjet’s shares took a battering earlier this month after it forecast a loss of up to £560m, with one fuel purchase alone adding a £25m hit to its bottom line.
Stock brokers say the jet fuel crisis has come at the worst possible time for airlines, who want to resist stifling consumer confidence in the leadup to the crucial summer holiday period.
Airlines stall cancelling flights
Gerald Khoo, an analyst at Panmure Liberum, said airlines have been “reluctant” to slash flight capacity so far.
He said: “We suspect that many airlines are hoping for a quick and clear resolution to the Iran crisis.
“They certainly do not want to be short of capacity if the source of the headwinds to demand, fuel costs and fuel supply suddenly disappear.”
Current rules dictate that airlines must operate their slots at airports at least 80 per cent of the time to retain the right to use the space, but the government has indicated it could soften these rules to cushion the Iran war blow.
The stock broker suggested that governments, if they allow flight capacity to fall, may end up dictating which flights get cancelled and which do not, meaning smaller airlines could be harder hit.
“We suspect that major hub airports, and their national flag carrier residents, would be likely to be prioritised,” Khoo said.