The head of the International Air Transport Association (IATA), Willie Walsh, stated on Wednesday that it would take months for jet fuel supply to recover, even if Iran reopened the Strait of Hormuz. This is due to disruptions in refining capacity in the Middle East. Jet fuel is the second-largest cost for airlines after labor, making up about 27% of operating expenses. The closure of the strait by Iran has significantly affected global jet fuel supplies. However, news about a ceasefire and a possible safe passage through the strait caused airline stock prices to rise, with oil prices dropping below $100 per barrel.
Walsh indicated that while crude oil prices might decrease, jet fuel costs could remain high because of refinery impacts. He noted that the reopening of the strait would not immediately resolve supply issues, stating that it could take months to get back to adequate supply levels. Walsh compared the current situation to past industry shocks but dismissed similarities to the COVID-19 pandemic, emphasizing that airline capacity was not reduced to the same extent as during that crisis. Historical recovery from past downturns, such as post-September 11 and the 2008-2009 recession, took four to twelve months.
As a result of the conflict, airlines in Asia have been reducing flights and carrying extra fuel from home airports to cope with jet fuel shortages, which have caused prices to double. Despite the challenges, airline stocks surged, with notable increases for companies like Qantas Airways, Air New Zealand, and Cathay Pacific. Walsh expressed confidence that Gulf carriers would recover quickly and mentioned that refining capacity could increase in countries like India and Nigeria while waiting for the strait to remain open. He also hoped that China and South Korea would resume exports of refined products once crude oil supplies normalized.
With information from Reuters
