Asian airlines cut schedules, carry more fuel in tight supply conditions

As the Middle East conflict reduces jet fuel supplies in some countries, airlines across Asia have cut flights, added refuelling stations, and carried extra fuel from their home airports. This is adding pressure to an industry that has already been hit by a "sharp increase" in fuel prices.

According to Kpler, European carriers should prepare for a similar disruption after Iran's closing of the Strait of Hormuz halted nearly 21% of the global supply of?seaborne?jet fuel.

Oil shocks in the past primarily increased prices. This one, however, is also limiting physical supply and forcing governments, airports, and airlines to consider rationing.

Shukor Yusof is the founder of aviation consultancy Endau Analytics. "They are concerned about the future because they don't know what will happen with the war and when we will know the supply chain or the feedstock will be coming from the Gulf region," he said.

Analysts say that Asia, Europe, and Africa are the most vulnerable regions, as U.S. supplies are abundant.

In Asia, the most affected markets are those with lower incomes, which depend on imports, such as Vietnam and Myanmar.

Bo Lingam, the CEO of AirAsia X, told reporters that they now load extra fuel before flying into Vietnamese airports.

He said that Vietnam limits the amount of gasoline they provide.

JET FUEL RATIONING

In the past, airports have experienced temporary jet fuel shortages caused by shipment disruptions or contamination. This has usually resulted in rationing and not complete outages.

The airlines have responded by adding refuelling stations on longer routes, or by carrying less cargo.

Ryanair CEO Michael O'Leary, who expressed concern that the Middle Eastern conflict might not end in this month, said last week that cutting flights could be a solution to a prolonged crisis.

He told reporters that if there is a 10% or 20% risk in the fuel supply for June, July or August then we will be forced to cancel some flights or reduce capacity.

Asia, with a smaller supply cushion and a greater dependence on the Hormuz flow, was 'hit faster.

According to the aviation authority of Vietnam, Vietnam Airlines has reduced 23 flights domestically per week in order to save fuel.

Cirium, a provider of aviation data, reports that some airlines in Myanmar have cut back on capacity for April due to fuel shortages.

According to a source with knowledge of the situation, Air India will refuel in Kolkata when returning from Yangon to Delhi because fuel is short at Yangon Airport.

A notice sent to pilots reveals that due to the Middle East crisis, Tahiti International Airport in the South Pacific has limited refueling for international flights to only the quantities necessary for flight operations.

Pilots in Pakistan are advised to bring the maximum amount of fuel from abroad.

This practice is expensive because it increases fuel consumption by carrying more fuel.

Brendan Sobie is an independent aviation analyst based in Singapore. He said that some countries were better off than others. Some countries may limit (fuel) for foreign airlines which leads to tankering. Some countries may be doing this because they fear running out.

DEMAND DESTRUCTION

Some airlines have cut their capacity due to the more than doubled price of jet fuel since the beginning of the Iran War, while others have raised fares and added fuel surcharges.

Batik Air Malaysia, for example, has reduced its domestic capacity by 36 percent. CEO Chandran Rama Muthy described the cuts as necessary and proactive in response to the "crisis mode" environment.

He said that if we continued to operate without making any adjustments, the company would be exposed to more operational and financial risks.

Due to the conflict, Gulf carriers like Emirates and Qatar Airways are operating at a much lower capacity than normal. Other global airlines have also reduced flights because fuel cost increases deter travellers.

Analysts said that even with flight reductions, the airline demand does not fall fast enough to match a drop in jet fuel supply.

Since the start of the crisis, 'calculations' show that at least 400,000 barrels of jet fuel per day that is normally produced in Asia-Pacific via crude that passes through the Strait of Hormuz has been affected.

Alex Yap is a senior oil products analyst with Energy Aspects. He said that there was no easy way to replace the lost volumes.

According to industry sources, flight cancellations have only reduced the demand for oil in Asia by 50,000-100,000 barrels per day. This suggests that deeper cuts are needed.

Ellis Taylor, Cirium Asia's Asia Editor, said: "We are only at the beginning of this cycle (of flight reductions) because demand seems to be resilient. However, I believe any oil-spike-induced economic slowdown will hit demand in second half of year."

(source: Reuters)