Until last February, the price of aviation fuel fluctuated between $85–90 per barrel. After the outbreak of the war in Iran, prices more than doubled, reaching the astronomical level of $150–200 per barrel. Skipping the intermediate stages, the end result of this explosive rise in fuel prices has already led to a reduction in passenger traffic by 2 million airline seats, as a consequence of the cancellation of thousands of routes.

The peculiarity of the current jet fuel price crisis — the element that differentiates it from many previous ones — is that the situation is worsening even further due to the closure of the Strait of Hormuz. Thus, beyond the disruption of normality in the extraction–refining–processing–distribution chain, supply flow is being strangled for purely practical reasons. Simply put, because Iran is prohibiting tankers from crossing a key geographic passage for supplying vast parts of the global market with fossil fuels and petroleum derivatives such as jet fuel, commonly known as kerosene. This development is causing grim concern among aviation analysts, with forecasts warning of impending depletion of fuel reserves in the West and aircraft being grounded due to generalized fuel shortages.

Two critical factors

The issue of jet fuel, combined with the prolonged hostilities in Iran, is twofold and revolves around two critical factors: the price of jet fuel and its actual availability on the market. The closure of the Strait of Hormuz automatically sparks panic and concern over the flow of oil from the Middle East to the West and the rest of the world. As a natural consequence of scarcity, as happens with every valuable material good that becomes rare, increased demand leads to uncontrolled price escalation.

The cost of aviation fuel is one of the industry’s largest expenses and largely determines the survival of every airline. This was once again confirmed by the protective measures quickly adopted by those directly affected by this new crisis, including raising ticket prices and cutting routes, sometimes by the thousands. Moreover, a constant, invisible, and bloodless global war of interests is being fought to secure adequate aviation fuel supplies at the lowest possible price. For this reason, and due to the consequences of the major turmoil caused by the war in the international jet fuel market, some airlines were even driven to bankruptcy, such as the giant American low-cost carrier Spirit Airlines. Other airlines decided to radically revise their practices, as happened in the case of Ryanair, which is abandoning its base in Thessaloniki citing the need for cost cuts. Similar measures are being adopted by airlines around the world.

Brutal cuts

Starting in Europe, Lufthansa, an iconic airline and the world’s fourth largest by total revenue (as a group including Lufthansa, Austrian Airlines, Swiss, Brussels Airlines, Discover, Lufthansa City Airlines, and Air Dolomiti), eliminated 20,000 flights in April alone. The reason behind this brutal reduction in routes was the increase in fuel costs and the resulting concern over shortages, which are estimated to increase the company’s operating costs this year by €1.7 billion. At the same time, Lufthansa completely shut down CityLine, a small subsidiary with a fleet of 27 aircraft based in Munich and Frankfurt, operating routes across Europe. Naturally, canceled flights entail compensation payments to passengers who had already purchased tickets in advance. The total amount of these costs remains unknown, though it was certainly taken into account by management before deciding on the route cuts.

The Lufthansa case is characteristic mainly because of the company’s rapid reflexes and efforts to neutralize, as effectively as possible, the damaging consequences of the aviation fuel market crisis. Technically, its profitability has not yet been interrupted, as the Lufthansa Group announced an 8% increase in first-quarter revenues compared to the same period last year, reaching €8.7 billion.

Nevertheless, as kerosene prices nearly doubled following the outbreak of military conflict in Iran and the closure of the Strait of Hormuz, Lufthansa immediately implemented an emergency cost-cutting plan — currently focused on routes. The company’s protection plan against uncontrolled cost increases also includes adding refueling stops during routes, either because of emergency rerouting to avoid hostile airspace or because sufficient fuel reserves are unavailable at final destinations.

Equally alarming, almost as much as the cancellation of thousands of flights and the closure of CityLine, is Lufthansa’s decision to charge cabin baggage fees for passengers choosing the cheapest fare category, Economy Basic. Under this fare, only a laptop or small backpack may be carried free of charge. Since May 19, cabin baggage on short- and medium-haul flights operated by Lufthansa Group airlines has been charged separately.

Dependent on Iran

Italian carrier ITA Airways, despite belonging to the Lufthansa Group, announced that it does not intend to cut routes. Instead, it will attempt to offset losses from rising jet fuel costs in the traditional way — passing the burden on to consumers. ITA Airways is therefore planning fare increases of 5%–10%.

Air France, together with its Dutch arm KLM, expecting passenger traffic to decline by 2%–4%, is implementing a package of emergency measures: average fare increases of €50 on long-haul round trips, while KLM is canceling around 160 flights across Europe.

The International Airlines Group, owner of British Airways, Iberia, Vueling and Aer Lingus, is for now maintaining a calm stance, merely warning of reduced expected profits due to an additional €2 billion expense this year solely from more expensive jet fuel. According to the parent company, the cancellation of only 111 British Airways flights is not considered significant.

Virgin Atlantic has proceeded with fare increases ranging from €80 to €500 per ticket. By contrast, carriers such as Ryanair, easyJet and TUI are taking a wait-and-see approach without major policy changes, although they speak of dramatic losses due to expensive jet fuel.

Scandinavian carrier SAS is cutting 1,000 flights, while Turkish Airlines is adding around €10 per ticket.

American airlines, anticipating sharply reduced profitability this year even though the U.S. is not dependent on Persian Gulf oil, are imposing additional baggage charges. American Airlines now charges $10 for the first two bags and $150 if a passenger dares bring a third suitcase. Delta Air Lines follows the same path as American, though more moderately, charging only $50 for a third bag, while United Airlines warns of possible fare increases of up to 15%–20% in the near future. As for Chinese carriers Air China, China Southern Airlines and China Eastern Airlines, they are moderately increasing ticket prices depending on distance. However, because Asian airlines depend heavily on Middle Eastern jet fuel, the crisis is expected to seriously damage their financial performance in the coming months.

Blow from Ryanair

As far as Greece is concerned, undoubtedly the most unpleasant development considered a collateral consequence of the war in the Middle East is Ryanair’s withdrawal from Thessaloniki. Beyond the symbolic blow to the country — especially at the dawn of the tourism season, as Europe’s strongest airline closes its base at Macedonia Airport — the company’s services in Greece are entering a phase of contraction and downgrading. Without the three aircraft permanently stationed in Thessaloniki, destinations and routes are being reduced. The number of tourists transported by Ryanair to Greece is also falling, while even flight schedules will no longer create the image of Greece as a hot tourist destination, but rather just another point on the map included in the company’s schedule.

On the other hand, Greece’s largest airline, Aegean Airlines, according to chairman Eftichios Vassilakis, may face an additional burden of €110–115 million this year due to expensive jet fuel. Mr. Vassilakis stated that the impact of the aviation fuel crisis is being largely absorbed by Aegean thanks to the early securing of adequate fuel reserves through hedging — that is, the advance purchase of large quantities of jet fuel at a pre-agreed fixed price. This practice, common in the aviation sector, allows Aegean to leave exposed to sudden fuel price fluctuations only a portion (around 40%) of the total kerosene required to operate its fleet.

In the United States

Particularly in the United States, the political consequences caused by the aviation fuel price crisis are becoming an increasingly serious problem. According to recent opinion polls, 63% of American citizens place the greatest share of responsibility for rising fuel prices — not just kerosene — directly on Donald Trump. The climate against Trump is becoming even heavier, as around 8 out of 10 Americans say high fuel prices are putting enormous pressure on their finances.

At the same time, former New Hampshire governor Chris Sununu, although a Republican, has sharply criticized Trump’s ministers almost since the start of U.S. intervention in Iran, especially regarding aviation fuel. And since Sununu is president of the Association of American Airlines, his words carry particular weight. Acting as the “guilty conscience” of the White House, he constantly reminds the public that American airlines were forced to spend more than $5 billion on fuel in March alone. This means their operating costs increased by 30%, inevitably passed on to passengers. The immediate result was a 21% surge in domestic round-trip ticket prices compared to the previous year. When millions of Americans are forced to pay an average of $570 instead of the $450 they paid before hostilities erupted in Iran, Trump’s strategists and advisers have every reason to worry about his popularity ahead of the November midterm elections.

American airlines nevertheless report that despite rising prices, they have not yet observed a decline in ticket demand. Sununu warns, however, that even if the war in Iran ends soon, prices are not expected to fall equally quickly. In fact, it may take months before this price freeze at extremely high levels is overcome. This means the bulk of tourist travel this summer will cost airlines much more, especially considering passengers already pre-purchased their tickets. However, it is inevitable that the profit squeeze airlines are experiencing will sooner or later be covered through fare increases and the elimination of routes deemed unprofitable.

Two passengers wait in vain to check in for a Spirit Airlines flight to Texas. A few hours earlier, the company suspended operations and announced the cancellation of all scheduled flights.

Spirit Airlines

One of the paradoxical elements in the U.S. government’s crisis management methods is that it claims not to have been surprised by the war’s impact on aviation. White House Press Secretary Taylor Rogers recently attempted to convince reporters that “both President Trump and his entire team of energy advisers had anticipated the short-term disruptions the operation ‘Epic Rage’ would cause in global markets. And of course, they have developed a plan to address these consequences.”

When Donald Trump is not announcing that Iran is ready to surrender or that the war is ending momentarily, he defends his decision to campaign against Iran with the following argument: “The rise in fuel prices is a very small price to pay to get rid of a nuclear arsenal in the hands of mentally disturbed individuals.” Nevertheless, while he appears fully confident in his choices and downplays their consequences, the real market does not seem to agree. In this climate, Spirit Airlines became the first giant of international civil aviation to collapse completely, receiving the final blow from rising fuel prices. Its bankruptcy and definitive shutdown were seen as confirmation of the worst fears: that after the war in Iran, the aviation landscape would never be the same again.

Spirit Airlines, the most powerful low-cost airline in the United States with a 34-year history, reportedly begged the Trump administration about two months ago for a $500 million rescue loan. The decision by ownership never to raise its famous bright-yellow aircraft into the skies again, because it could no longer cope with soaring kerosene costs, meant that 9,000 flights were canceled and, most importantly, 17,000 people lost their jobs.

Appeals

From the American government’s perspective, the Spirit Airlines case is not representative of the crisis and probably was not the true cause of its collapse. According to the official narrative, the airline was already doomed by its own business model and by the fact that Trump’s predecessor, Joe Biden, had prevented it from merging with fellow low-cost carrier JetBlue.

Nevertheless, its closure appears more like the beginning rather than the end of unpleasant developments for the Trump administration in aviation. Several smaller American carriers have made dramatic appeals to the U.S. president for emergency financial support. The $2.5 billion they are requesting is certainly not insignificant. On the other hand, it remains far from certain that even if the funding were approved, these airlines would manage to survive the fuel price crisis.

Photos: REUTERS, Getty Images / Ideal Image