The Iran war ceasefire and the reopening of the Strait of Hormuz are clearly good news for commodity markets, not least as the Gulf provides a significant portion of global jet fuel supplies, but the news overnight does not mean that air travel is out of woods just yet.
What does the ceasefire in the US-Iran war mean for air fares?
It is too early to tell but the longer peace holds, the lower the risk of disruption to jet fuel shipments through the Strait of Hormuz, lessening the likelihood that airlines will have to boost charges to cover the increased cost.
Why is Hormuz so important?
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It is the only route in or out of the Gulf and one-fifth of world oil supplies travel through there.
But have airlines not already begun hiking prices?
In some parts of the world yes, they began adding extra fuel surcharges to flights to claw back some losses.
What about Irish airlines?
Irish and many European travellers were spared surcharges, as airlines here buy fuel in advance, a practice known as hedging, which insulates them against sudden price rises.
So there is no risk that we will pay more for flights this summer?
We’re not out of the woods yet. Willie Walsh, chief executive of the International Air Transport Association, said on Wednesday that it could take months to repair damage to refineries in the Gulf that produce jet fuel and get supplies back to normal.
But have oil prices not started falling?
Yes, they fell back below $100 a barrel on Wednesday morning. That’s a drop of around 15 to 20 per cent, but they have risen more than 60 per cent since the end of February and jet fuel prices almost doubled at one point.
How well prepared are Irish airlines?
Ryanair has hedged 80 per cent of its fuel needs up to the end of March 2027 at $67 a barrel. International Airlines Group, which owns Aer Lingus, has a similar approach. But Ryanair chief Michael O’Leary, confirmed last week that it was paying close to twice normal prices for the “unhedged” 20 per cent.
What is a worst-case scenario?
That fuel supplies are seriously disrupted, ticket prices rise and airlines cut back their schedules, meaning fewer flights this summer, which could also drive up costs.
How likely is that?
O’Leary said last week that if the war continued through April, disruption to jet fuel supply was expected from early Ma. At the time, he said there was a risk to between 10 per cent and a quarter of Ryanair’s supplies.
Would that have hit Irish people?
Possibly, but the Ryanair boss maintained that it would not mean proportionate cuts to schedules and would affect different parts of Europe differently.
Why is that?
Much of the jet fuel in western Europe comes from the US, Norway and Africa, while the eastern part of the Continent depends more on supplies from the Gulf and Middle East.
So why did prices go up in this part of the world?
Because jet fuel is a globally traded commodity for which there is demand around the world, so a shortage in one place affects prices everywhere.
What happens next?
If the ceasefire holds, the Strait of Hormuz remains open and refineries get the chance to repair wartime damage, then the risk to fuel supplies recedes.
Are there other pressures on airline ticket prices?
Yes, demand for flying keeps rising but aircraft manufacturers are struggling to meet orders from airlines, so there is a squeeze on the supply of seats on planes.
