O ceasefire two-week campaign announced by US President Donald Trump with Iran is unlikely to bring immediate relief to the global aviation industrywhich is facing its worst crisis in years, executives said this Wednesday (8), even as airline shares rose after the agreement.
Willie Walsh, managing director of IATA (International Air Transport Association), warned that the recovery of aviation fuel supplies it would take months, due to disruptions in refining capacity in the Middle East.
A Delta Air Lines predicted lower-than-expected profit for the second quarter and said it will reduce capacity across all its operations to offset $2 billion in extra fuel costs which expects to post the second quarter.
Oil prices fall after ceasefire agreement
Fuel is the second largest expense for airlines, after labor, typically accounting for around 27% of operating expenses.
The closing of the Strait of Hormuz Iran halted jet fuel supplies around the world, and news of a ceasefire and the possibility of safe passage through the Strait sent airline stocks soaring.
The price of oil fell below US$100 per barrel after Trump said it had agreed to a two-week ceasefire with Iran, conditional on the immediate and safe reopening of the Strait.
But comments from executives and experts across the industry highlight the worsening difficulties faced by airlines, which face the doubling of fuel prices aviation and concerns about tight supply.
Airlines around the world have increased as tariffs, reduced the flights transported extra fuel from origin airports and added refueling stops, .
Walsh told reporters that while he expected crude oil prices to decline, jet fuel costs would likely remain slightly elevated due to the impact on refineries.
“If it reopens and stays open, I think it will still take a few months for supply to get back to the level needed, due to the disruption of refining capacity in the Middle East,” Walsh said.
Airline stocks soar, but tourism recovery will take time.
Jet fuel prices typically track oil prices, but have more than doubled since the conflict with Iran, far exceeding the 50% increase in crude oil prices before the two-week ceasefire.
This has increased costs, disrupted schedules, caused airlines to cut routes and pushed the limits of what travelers are willing to pay.
On Wednesday, Delta said it expects to pay about $4.30 per gallon of jet fuel in the June quarter, an increase of more than $2 billion from the previous year.
Still, global airline and travel stocks rose. Qantas Airwaysfrom Australia, jumped more than 9%, Air New Zealand rose more than 4%, Cathay Pacificfrom Hong Kong, rose 5% and IndiGo, of India, registered an increase of 8%.
In Europe, travel operator TUI rose more than 12%, Wizz Air gained 10%, Air France-KLM advanced around 14% and Lufthansa was up 11% at 11:32 GMT, outperforming gains of European stock indices. The airlines American companies also registered appreciation in the pre-market.
Although the interruption in the supply of aviation fuel remains a risk, the ceasefire provided “a buying opportunity for quality airlines”, analysts at Panmure Liberum said in a note.
Stranded cruise ships and long recovery for tourism.
TUI said it is looking at options for its two cruise ships – “My Ship 4” and “My Ship 5” – who have been held in Abu Dhabi and Doha since the start of the war.
According to the company, reduced teams are keeping the ships operational. Preparation for the next planned voyages will take at least four weeks, depending on the route, weather conditions and operational conditions.
Even with the possibility of reopening travel through major transit hubs following a ceasefire, the tourism industry in the Middle East – valued at around US$ 367 billion – it will also take time to recover.
Even in the best-case scenario, this could take months, economist Aaron Goldring of Oxford Economics said at a press conference.
“Basically, there is a residual impact on general sentiment that lasts for about seven months after the ceasefire,” Goldring said, “with the perception of security gradually returning.”
