Overview
Airlines are facing financial pressure from swings in jet fuel costs, and many carriers lack sufficient hedging protection against that volatility, the International Air Transport Association said. Daniel Chereau, IATA's head of fuel, discussed the situation at the S&P Global Energy Middle East Petroleum and Gas Conference, attributing part of the industry's strain to rising refinery profit margins for jet fuel, commonly known as crack spreads.
Crack spreads and market moves
According to LSEG data cited by IATA, jet fuel crack spreads in North West Europe surged to a record above $121 per barrel in March. That level contrasts with roughly $30 per barrel before the Iran war began in late February, underscoring the scale of the recent market change. Chereau noted that carriers with more complex hedging strategies retain some protection, implying that hedging sophistication has become an important differentiator in the current environment.
Regional supply constraints
The Middle East supplies a substantial share of the world's jet fuel. IATA highlighted that the region's production and exports have been sharply curtailed by both the closure of the Strait of Hormuz and attacks on energy facilities. Those disruptions have tightened available supplies and contributed to the elevated crack spreads that are hurting airlines' margins.
Operational and demand effects
Beyond pricing, the aviation sector is experiencing demand destruction, though IATA cautioned that the decline in demand is not solely attributable to jet fuel prices. Airlines have cancelled flights, which directly reduces demand figures, and certain airports in some regions have reported temporary fuel shortages. These operational impacts compound the financial strain created by higher jet fuel refining margins.
Implications
The combination of record crack spreads, curtailed Middle East exports and localized fuel shortages contributes to an uneven recovery and puts pressure on carriers that lack comprehensive hedging programs. IATA's remarks underscore the intersection of refined product market dynamics and airline operational resilience.