Jet fuel shortages threaten could see European airlines cut operations by up to 20% – analyst Proactive uses images sourced from Shutterstock
Panmure Liberum has warned that European airlines may be forced into capacity cuts of 10-20% if jet fuel supply disruption deepens, though the broker said fears of a total shutdown in flights should not be overstated.
In a sector note, analyst Gerald Khoo said the security and visibility of jet fuel supplies had become the most common investor question facing the airline industry.
“The most frequent question we are being asked at present is about the security and visibility of jet fuel supplies for the airline industry,” Khoo said.
Airlines appear confident about fuel supplies for the next few weeks, helped by stockpiles, alternative sourcing and cargoes already in transit when the Iran crisis began. Beyond May, visibility is weaker.
Panmure Liberum said the Middle East accounted for around a quarter of European jet fuel supplies before the crisis, while IATA estimates the figure at 25-30% and other sources put it as high as 40%.
“While the airlines appear confident in supplies for the next few weeks, there is a lack of visibility beyond May,” Khoo said. “We see some risk of enforced capacity reductions, but we do not anticipate a cliff-edge situation with all flights being suspended.”
The broker said suppliers have already been pivoting towards regions such as the US and West Africa, but questioned how sustainable that would be as seasonal demand ramps up.
Fuel shortages could also provide the trigger for cuts that Panmure Liberum already sees as commercially necessary, given a weaker economic backdrop and deteriorating consumer confidence.
“Disruptions to fuel supplies could end up being the catalyst that forces airlines to implement capacity cuts,” the broker added.