A two-week ceasefire with Iran, brokered by US President Donald Trump, is unlikely to bring immediate relief to the global aviation industry, which is experiencing its worst crisis in years, executives said on Wednesday, even as airline stocks rose after the deal, UNN reports with reference to Reuters.
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Willie Walsh, Director General of the International Air Transport Association (IATA), warned that it would take months to restore aviation fuel supplies, even if Iran reopens the Strait of Hormuz, given the disruptions to refining capacity in the Middle East.
Trump proposes securing Strait of Hormuz in 'joint venture' with Iran08.04.26, 15:19
As Bloomberg notes, Walsh also remarked that the two-week ceasefire between the US and Iran is generally positive for the aviation industry, but jet fuel and ticket prices will remain elevated for some time. "Even two weeks is a positive, because we will see some return of oil supplies," Walsh said.
Fuel is the second largest cost item for airlines after labor, typically accounting for about 27% of operating costs.
Iran's closure of the Strait of Hormuz has led to a reduction in aviation fuel supplies worldwide, and news of a ceasefire and the possibility of safe passage through the strait has led to a rise in airline stocks.
Oil fell below $100 a barrel after Trump said he had agreed to a two-week ceasefire with Iran on condition of an immediate and safe reopening of the strait.
Oil price drops below $100 after Trump announces two-week ceasefire08.04.26, 10:28
But comments from industry executives and experts underscore the increasing difficulties for airlines, which are facing a doubling of jet fuel prices and concerns about limited supplies.
Carriers worldwide are raising fares, cutting flights, carrying extra fuel from home airports, and adding refueling stops, as the conflict in the Middle East curtails supplies.
Walsh told reporters that while he expects oil prices to fall, jet fuel costs are likely to remain somewhat elevated for some time due to the impact on refineries.
"If the plant reopens and stays open, I think it will still take several months to get back to the required level of supply, given the disruptions in refining capacity in the Middle East," Walsh said.
"If the price of oil has fallen by 16%, one might think that the price of jet fuel would fall by a similar figure, but it will still be a high price, and that will mean higher ticket prices. That is inevitable," Walsh noted.
Walsh said the short-term risk of supply shortages still remains. Asia is the most vulnerable, followed by Africa and Europe, he said.
Airline stocks soar, but tourism recovery will take time
Jet fuel prices typically move with oil prices, but since the conflict in Iran, they have more than doubled, significantly exceeding the 50% increase in oil prices before the two-week truce.
This has led to increased costs, disrupted schedules, prompted airlines to cut routes, and pushed the limits of what travelers will pay.
Delta Air Lines forecast lower-than-expected second-quarter earnings and said it would cut capacity across the board to offset an additional $2 billion in fuel costs it expects to incur in the second quarter.
Despite this, shares of global airlines and travel companies rose. Shares of Australia's Qantas Airways jumped more than 9%, Air New Zealand more than 4%, Hong Kong's Cathay Pacific 5%, and India's IndiGo 8%.
In Europe, shares of tour operator TUI rose more than 12%, Wizz Air 10%, Air France-KLM approximately 14%, and Lufthansa 11% by 11:32 GMT, outperforming the rise in European stock indexes. US airlines also showed gains in pre-market trading.
While disruptions to jet fuel supplies remain a risk, the ceasefire has provided a "buying opportunity for quality airlines," Panmure Liberum analysts said in a note.
TUI said it was considering options for its two cruise ships – "Mein Schiff 4" and "Mein Schiff 5" – which have been stranded in Abu Dhabi and Doha since the start of the war.
According to the company, crews are keeping the vessels operational. It will take at least four weeks to prepare them for their next scheduled trips, depending on the route, weather, and operational conditions.
Even with the potential resumption of travel through key transit hubs after the ceasefire, the Middle East's tourism industry, worth about $367 billion, will also need time to recover.
Even in the best-case scenario, it could take months, Oxford Economics economist Aaron Goldring said at a briefing.
"You effectively have a tail of about seven months after the ceasefire of impact on sentiment," Goldring said, adding that "the perception of safety recovers quite gradually."
Opening of airspace
Meanwhile, as AP notes, Iraq and Syria have announced the opening of their airspace.
Iraqi Civil Aviation Authority chief Bankin Rekani said the country's airports and airspace had reopened after a ceasefire between the US, Israel, and Iran.
He made the announcement hours after a two-week cessation of hostilities, brokered by Pakistan, took effect.
As airspace and flights across the region were affected by the war, Baghdad and Irbil international airports were closed, with the latter facing threats and attacks.
Syria also says it has reopened its airspace to all flights, citing reduced tensions after the announcement of a ceasefire between the United States and Iran.
The Syrian Civil Aviation Authority reported a return to normal, safe conditions at Damascus International Airport on Wednesday.
Syrian airspace had been closed in recent weeks after the US and Israel attacked the Islamic Republic, and Iran responded with strikes on targets across the Middle East.
The war has forced many airlines to avoid flying over the region, and the resulting delays have affected travelers worldwide.