US President Donald Trump’s recent two-week ceasefire agreement with Iran is not expected to provide immediate relief to the global aviation industry, which is currently facing significant challenges. Executives in the industry expressed skepticism on Wednesday, despite a temporary surge in airline shares following the announcement.
Willie Walsh, the director general of the International Air Transport Association (IATA), cautioned that the recovery of jet fuel supply could take several months, even if Iran were to reopen the Strait of Hormuz. This is due to disruptions in Middle East refining capacity caused by recent events.
Delta Air Lines announced lower-than-anticipated profit projections for the second quarter and revealed plans to reduce capacity across its operations to offset an estimated $2 billion in additional fuel costs during the same period. Jet fuel expenses, being the second-largest cost for airlines after labor, typically represent around 27% of their operating costs.
The closure of the Strait of Hormuz by Iran has led to a global shortage of jet fuel. The prospect of a ceasefire and the potential reopening of the Strait boosted airline stocks, while oil prices dropped below $100 per barrel following Trump’s announcement.
Despite the positive market response, industry experts and executives highlighted ongoing challenges for airlines. The doubling of jet fuel prices and concerns about limited supplies have led carriers worldwide to raise fares, reduce flights, carry extra fuel, and add refueling stops to mitigate the impact of the Middle East conflict.
Walsh emphasized that while crude oil prices may decline, jet fuel costs are likely to remain elevated due to refinery disruptions. The industry has witnessed a more than twofold increase in jet fuel prices since the onset of the Iran conflict, surpassing the 50% rise in crude prices prior to the ceasefire agreement.
Delta disclosed that it anticipates paying approximately $4.30 per gallon for jet fuel in the June quarter, reflecting a significant increase from the previous year. Despite these challenges, global airline and travel stocks experienced a surge in value, with various companies, including Qantas Airways, Air New Zealand, Cathay Pacific, and IndiGo, recording notable gains.
Although the risk of ongoing jet fuel supply disruptions persists, analysts view the ceasefire as an opportunity for investors to consider quality airlines. Meanwhile, TUI, a prominent travel operator, is evaluating options for its two stranded cruise ships, “Mein Schiff 4” and “Mein Schiff 5,” which have been stuck in Abu Dhabi and Doha since the conflict began.
As the tourism industry in the Middle East, valued at approximately $367 billion, faces a long road to recovery, TUI estimates that it will take at least four weeks to prepare the cruise ships for their next voyages. According to economist Aaron Goldring from Oxford Economics, even in an optimistic scenario, the tourism sector could take several months to fully bounce back after the ceasefire, with a gradual return of traveler confidence.