How the jet fuel 'crisis' could ruin your holiday — Global News Podcast

[0:00] Welcome to the Global News Podcast from the BBC. Hello, I'm Oliver Conway. And today we're joined [0:05] by our transport correspondent Theo Leggett. And Theo, we're going to talk about the jet fuel [0:10] problems caused by the US-Israeli war with Iran. How bad is everything at the moment? [0:17] Well, there are pressures building. I think that's what you'd say. The situation at the moment [0:21] is that the price of jet fuel is very, very high and has been since the start of the conflict. [0:26] It was at one point more than double what it was at the start of the conflict. It's come back off a [0:32] little bit, but it's still very, very high. It's already causing some airlines to put up prices [0:37] and it's already causing some airlines to cancel flights. And there is talk, and at the moment it [0:43] is just talk, about a physical shortage. If we continue, particularly in Europe, in the direction [0:50] we're going in at the moment, that is no fuel supplies coming from the Gulf, where normally [0:56] about half of Europe's imports come from, then stocks that are held in European countries [1:02] start to dwindle. And eventually they dwindle to a level where there has to be some kind [1:06] of prioritisation going on, which means that according to the head of the International [1:10] Energy Agency, you could see, for example, some airports running out. But these would be [1:15] localised shortages. Large airports like Heathrow probably wouldn't run out of fuel, or at least [1:20] not initially. But airlines would, at some point, if that continued, have to ration, and that would [1:27] mean cutting back services. Looking at cancellations, how many are we talking about as a proportion of [1:33] all the flights we see every day? What kind of routes, and are certain countries more affected than [1:39] others? It depends on the airline, because an airline like Ryanair, for example, is very different [1:43] from United or American Airlines or British Airways. You know, you've got long-haul carriers, [1:47] you've got short-haul carriers. Each airline would look at its portfolio and look predominantly at [1:52] where the profit is and where the consequences of cutting a flight are going to be greatest. [1:56] Also, the fuel savings they might make. And they will undoubtedly prioritise the routes which [2:02] have the highest density, which most people want to travel on. And they might choose to cut flights [2:07] on routes where they have enough services that it might not make that much difference from a [2:11] passenger's point of view. Now, the fact is that the high price of fuel is making some routes that [2:17] might otherwise have been economically viable, less profitable. So, for example, this week we've [2:23] had Lufthansa cutting about 20,000 flights from its summer schedules. Part of that is the closure of [2:28] part of its business, Lufthansa CityFly, but it's also the impact, quite clearly, of fuel prices going up. [2:36] Other airlines, for example, United, has said ticket prices could go up 15% to 20%. [2:43] So, it's hard to put a precise figure on it, but it is happening and happening to airlines around the [2:49] world. And is it having an impact on passengers as we speak? [2:54] Well, if their flights are cancelled, then yes. But they might not notice it too badly because [2:58] one thing that airlines will try and do is accommodate passengers who are already booked [3:03] on other services. So, for example, if you have four or five services a day going from one city to [3:09] another and you cancel one, you might have spare space on the other flights. So, you might just [3:13] move a passenger's booking. So, we're not at the situation yet where lots and lots of passengers [3:19] are being inconvenienced by all of this. What we are looking at is higher prices in seasons to come, [3:26] potentially the summer season in Europe, for example, less availability of seats, ticket prices [3:32] being pushed up anyway by the price of fuel, and therefore passengers having to pay more to get to [3:37] where they want to go. And just on the cancellations, if your flight is cancelled, do you get [3:42] compensation? Well, you would get a refund if you were unable to fly. The compensation point is a [3:48] really interesting one, certainly in Europe, where there is a regulation called EU261, which provides [3:54] for passengers to be compensated if their flight is delayed or cancelled. And the compensation bill [4:00] can run into hundreds of euros per passenger, depending on the circumstances. [4:04] Now, airlines in Europe and in the UK have been lobbying Brussels, the British government to set [4:11] out specifically that flights cancelled due to increasing fuel prices or other consequences of [4:18] the conflict in the Middle East would be considered an exceptional circumstance. And if they're considered [4:23] an exceptional circumstance, then compensation is not paid out. So, the airlines are already lobbying, [4:30] even though they say at the moment there is no problem, there is no fuel shortage, they are lobbying [4:35] to make sure that the law is tightened up, so that if they do have to cancel flights, they don't have [4:41] to pay compensation. Now, we're also seeing the price of petrol at the pumps go up, gas as they call it, [4:47] in the US. What is it specifically about jet fuel that's causing these specific problems? [4:53] There are two issues with jet fuel. One is that a very large part of what we use in Europe comes from [5:00] the Gulf region, and in particular, Kuwait. Those supplies cannot get out at the moment. [5:06] Now, Europe has been trying to find other supplies of jet fuel. So, for example, you can get jet fuel [5:13] that's made by Dangote in Nigeria. There may be some extra coming from there. There's been a big effort [5:18] to get more from the United States. But one of the problems here is that the United States uses a [5:24] different type of jet fuel to Europe. So, Jet A1 is certified for use in Europe. Jet A is certified [5:30] for use in the United States. Why does that matter? Because US refineries are predominantly geared up [5:36] to make Jet A. So, although some increased supplies are coming across the Atlantic, it's not enough to [5:42] make up the shortfall. And then you have the situation in East Asia as well. Now, East Asia does make a [5:48] lot of its own jet fuel. But it relies on crude oil supplies, predominantly from the Gulf, in order to get [5:55] the raw material that it makes that jet fuel from. So, in other words, it's being hit as well by the crisis [6:02] in the Gulf and quite badly. So, you have all of this coming together. And ultimately, it ends up being a [6:08] shortage of the refined product that is particularly serious. And that is why you have seen the price of [6:14] kerosene, of jet fuel, go up far in excess of what's happened with the oil price. The oil price [6:20] before the conflict was around $68 a barrel. It went up at its highest point to $119. It's now around [6:26] $100. So, it's been moving a lot. It has gone up a lot. But nothing like what we've seen with jet fuel. [6:34] Jet fuel is a refined product. There are limited areas where it can be made. There are limited supplies. [6:39] And that's the issue. And in terms of airlines, is there anything they can do both in the short term [6:44] and in perhaps the longer term to get around these issues? [6:48] Well, there are various little tactics they can use to improve their own fuel situation on a [6:53] flight-by-flight basis. So, there's something called tankering where an aircraft can take off [6:58] with more fuel than it needs from an airport which has plentiful fuel or cheap fuel or whatever and then [7:03] fly to its destination. And then it will have fuel on board to carry on to its next flight without [7:08] having to top up as much. Although it will be heavier, so it will presumably use more of it on [7:12] that route. That's the argument against it. It's environmentally not a good idea because you are [7:16] ultimately burning more fuel because the aircraft is heavier. And this has been frowned upon in Europe. [7:23] There are rules to minimise the amount of tankering that goes on. Airlines in Europe are lobbying the [7:28] European Commission to temporarily suspend those rules so that they can do a bit of tankering [7:33] if it helps ease them. Longer term, of course, investment in more efficient aircraft. It's a [7:39] great idea, but the airlines are already doing that because aviation fuel makes up a large proportion [7:44] of their costs. So, they want to minimise it anyway. They're investing in efficient aircraft. [7:49] The current generation of aircraft is much more efficient than the previous one, but order books [7:55] are full. So, it's not something you can do overnight. You certainly can't say, [7:59] there's a crisis going on at the moment. I'll go out and buy some new planes because those [8:03] new planes won't be delivered for a number of years. [8:06] And if the Strait of Hormuz were to reopen tomorrow, how long would it take for things [8:12] to get back to normal? [8:13] It depends who you talk to in the industry, but you have to remember that tankers from the Gulf [8:18] to Europe, say to Rotterdam, take about five or six weeks normally. And those fuel supplies have [8:23] to be brought in, have to be processed and have to be distributed. So, again, it wouldn't be [8:28] overnight. Also, there are a lot of tankers currently in the Gulf that would have to make [8:32] their way out. There would be something of a traffic jam in the Strait. It's not as though [8:36] all of that shipping can just come straight out. It can't. What if the infrastructure, [8:41] the refining infrastructure has been damaged? There are some unknowns there. And it does take [8:45] time as well, even if the refineries aren't damaged, to get them back up to speed. That's a [8:50] process that can take a few weeks as well. So, in other words, if you listen to Willie Walsh, [8:54] the Director General of the International Air Transport Association, the after effects of this, [8:59] even if we get fuel supplies coming through the Strait pretty quickly, are going to linger for [9:06] months to come. And that means high prices in terms of jet fuel for months to come. And that [9:10] does unfortunately mean higher prices for passengers. So, even if you don't get your flight [9:16] cancelled, you know, your holiday plans may go ahead as you want. And if you've booked early, [9:21] you may not even see a price increase this time round. Future tickets are going to be more expensive [9:26] and for quite a long time to come. Theo, thank you very much indeed. Theo Leggett there, [9:31] our transport correspondent. If you'd like to hear more from the Global News Podcast, [9:35] click on the link below. Thanks for watching.