M’East crisis: Global airlines outline plans
By Kelvin Osa Okunbor Global carriers are drawing up contingency plans to starve off disruptions and grounded flights so far estimated at $50 billion over crisis in the Middle East
By Kelvin Osa Okunbor
Global carriers are drawing up contingency plans to starve off disruptions and grounded flights so far estimated at $50 billion over crisis in the Middle East raising fresh concerns over the spectre of aviation fuel shortage.
Though Nigerian carriers have not been directly affected by the escalating crisis in the Middle East countries, but, operators are weighing hedging options for aviation fuel purchase.
Nigerian carriers lift aviation fuel, otherwise known as Jet 1, from the local refining facility.
A source close to local operators say the global impact of the Middle East crisis has not taken a catalytic toll on their operations in terms of operating costs.
But, the geopolitical tension could affect aviation training and aircraft maintenance schedules planned for done countries in the region if the crisis is not put under diplomatic control.
Experts described the effects of the Middle East crisis as the worst in the airline industry since the pandemic.
As the conflict heads into a fourth week, airline executives are sounding the alarm on its repercussions for an industry exposed to a prolonged increase in oil prices, disruption to the Gulf’s hub airports and a potential hit to global demand.
Passengers on routes far beyond the Gulf are set to face a steep increase in ticket prices in coming months as airlines attempt to shield their profits.
Jet fuel, which accounts for a third of airlines’ costs, has doubled since the US and Israel launched their attacks on Iran last month and is still rising.
Although many carriers are hedged against swings in oil prices, airline executives warn that the precipitous rise in the cost of jet fuel this month would force them to lift fares.
“Fuel spiked quite heavily after the Ukraine invasion in 2022 as well, but this has gone further north,” said EasyJet Chief Executive , Kenton Jarvis, adding that the conflict marked the severest upheaval for the industry since the pandemic closed the skies in 2020.
In a sign of investors’ alarm, the 20 largest publicly listed airlines have lost about $53 billion in market capitalisation since the war began, according to regulatory calculations.
Investors have also increased their bets on further declines in share prices, with Wizz Air, a low-cost European carrier, now the most affected company on the FTSE 100, and easyJet also targeted.
The crisis has struck following a sustained rebound in demand since the pandemic, with several airlines enjoying a run of record profits. Nevertheless, airline executives are wary that demand can withstand much higher ticket prices.
Carsten Spohr, the Chief Executive of Lufthansa, said he feared higher prices could dent demand over the longer term but insisted that Germany’s largest airline had no choice but to raise fares.
“Our average profit is about €10 per passenger, there’s no way you can absorb the additional cost,” he said.
In an indication of how the disruption is ricocheting across the sector, airlines are drawing up contingency plans in the event of a shortage of jet fuel.
Ben Smith, Chief Executive of Air France-KLM, said that the carrier was putting plans in place to cope with a squeeze in supplies, including cutting services to parts of Asia.
Airline executives said the epicentre of the crisis remained in the Gulf, where the state-backed trio of Emirates, Etihad and Qatar have been forced to dramatically cut back their schedules amid airspace closures and the collapse of the region’s tourism.
“For the guys in the Middle East, this is a big crisis,” said Willie Walsh, head of airlines lobby group IATA and the former boss of BA, adding that it remained dwarfed by the crisis that engulfed the industry during the pandemic.
This is “more akin to the post-9/11 transatlantic issues where demand for transatlantic flying declined significantly”, he added.
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Given the scale of the disruption, Andrew Charlton, Head of Aviation Advocacy, a consultancy, said Gulf’s flag carriers were likely to require cash injections from their state owners.
“If you’re an airline without state backing you are going to be in trouble,” he said.
Although many carriers are hedged against swings in oil prices, airline executives warned that the precipitous rise in the cost of jet fuel this month would force them to lift fares.
The disruption has extended to cargo as freight from heavily disrupted global shipping shifts to aircraft, leaving some airports overwhelmed.
Goods sent to Geneva airport are being driven to Paris because planes taking off from the Swiss base are full, according to Giovanni Russo, who heads operations at the airport.
As the industry reels from the conflict, Jarvis, Head of EasyJet, said he expected airlines’ share prices would quickly rebound when the war ends.
“The share price has moved against all airlines since the start of the conflict. I think they’ll close their position quite quickly if any ceasefires are announced,” he added.
