Aviation Fuel Plentiful, But Flying Unprofitable Amidst Cancellations

The current crisis in air travel, marked by widespread flight cancellations, is not a story of fuel shortages, as some airlines might claim. Instead, the reality on the ground is that the soaring price of aviation fuel has rendered many routes economically unviable. Airlines planned their summer schedules months ago, anticipating fuel costs around $800 per ton, but current prices have doubled to $1,500-$1,600 per ton. Without hedging against these price increases, many carriers find themselves in a position where flying is simply not profitable.

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If today airlines in Europe are canceling flights, claiming that there is a shortage of fuel somewhere, they are lying. They are canceling because it is not profitable for them to fly.

While the simplest solution would be to pass these higher costs onto passengers, this is not a viable option. Consumers are unlikely to accept significantly higher ticket prices, and empty planes are a direct consequence of such increases. Therefore, airlines are forced to cancel flights rather than operate them at a loss. This situation highlights the precarious financial state of many airlines, particularly those without robust hedging strategies.

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It's simplest to pass the higher costs onto passengers, but the passenger will not accept a high price. And if they don't buy a ticket, the plane becomes empty. So the flight has to be canceled.

The European Commission is exploring ways to assist the beleaguered aviation sector. However, any aid is expected to be more limited than the substantial financial packages provided during the COVID-19 pandemic. Instead of direct bailouts, the focus may be on regulatory adjustments, such as easing slot-release rules, and ensuring fuel availability. Some experts also advocate for a more level playing field, particularly concerning non-EU airlines, such as Chinese carriers, which may benefit from subsidized fuel. This approach aims to address the systemic issues affecting the industry without resorting to massive public spending.

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I don't think the EU will consider a broad aid program. It's too early for that. Besides, the scale of the global threat, compared to the situation during COVID-19, is much smaller, and the main consequences will be worse results for airlines and price increases.