Airlines cut flights and hike fares as fuel prices surge

Air India and Air New Zealand have announced they will cut flights and raise fares as jet fuel prices rise due to the US-Israeli war with Iran.

Many airlines around the world have had to take emergency measures to counter the rising cost of fuel, which typically accounts for 20-40% of their operating costs.

Last week, the benchmark price of European jet fuel hit a record high of $1,838 (£1,387) a tonne, up from $831 before the war began.

Analysts have warned that travelers should expect further ticket price increases and more canceled flights as the conflict continues.

The Gulf is a major source of aviation fuel, accounting for around 50% of European imports. Most of it passes through the Strait of Hormuz, which Iran effectively closed in response to U.S. and Israeli attacks.

The rise in jet fuel prices reflects the role Middle East refineries play in supply. The Al-Zour refinery in Kuwait alone supplies about 10% of European jet fuel imports, according to Energy Intelligence.

Air New Zealand’s cancellations are expected to affect routes to and from Auckland, Wellington and Christchurch, with flights to smaller airports remaining unchanged.

The airline, which had already canceled some flights last month, said on Tuesday that the “vast majority” of customers affected by the cancellations were being offered alternative flights on the same day.

“Like airlines around the world, we are facing jet fuel prices that are more than double what they typically would be,” a spokesperson said.

At the same time, Air India announced that it would change the fuel surcharge on its domestic flights from a flat amount to one based on the distance of the flight.

It also increased its surcharges for international flights due to what it considers “one of the most challenging fuel cost environments that airlines around the world have faced in recent years.”

Many airlines in Asia have reduced services and increased fares to cope with the situation. Major economies, including Japan and South Korea, have been particularly hard hit by the disruptions because they rely heavily on energy from the Middle East.

Last week, China Eastern Airlines announced it was increasing surcharges for domestic flights, while Korean Air said it was moving into emergency management mode.

Airlines around the world have also taken action. United Airlines in the United States and SAS in Scandinavia are among those that have reduced flights and increased ticket prices.

Air France-KLM announced it would increase fares for long-haul travel, while Cathay Pacific would increase its fuel surcharge.

IAG, owner of British Airways, and EasyJet were able to delay either of these measures as they purchased their fuel at a price set before the war started.

However, Ryanair Michael O’Leary told Sky News last week that jet fuel supplies could begin to be disrupted in May if the conflict continued.

Analysts told the BBC that rising ticket prices and flight cancellations were likely to continue.

“In an already tight market, the current lack of jet fuel exports to the Middle East is making the situation worse,” said Mick Strautmann, an analyst at data firm Vortexa.

“Given that global jet fuel exports are currently at a four-year low, the same level of demand for air travel is unlikely to be sustainable if disruptions persist, meaning airlines will likely have to further increase prices and reduce the number of flights,” he said.

He added that this would be “increasingly likely” as the peak summer travel season approaches in many parts of the world.

However, despite the tightening supply, George Shaw, senior analyst at market intelligence firm Kpler, said shortages were still a long way off.

“Europe is not going to run out of it, as jet fuel is produced locally and, generally speaking, April should be manageable in terms of stocks,” he said, although adding that there could be “some localized problems” in May as the drop in imports is “more keenly felt”.