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4 min read
ATF shortages led to a 2.5% YoY decline in global airline capacity in Apr, vs. 5-6% growth pre-war. With the seasonal pick-up in flying ahead, and Europe’s jet fuel stocks at a key storage hub down 30% post-war, the fastest 2-month drawdown ever, we expect demand destruction to accelerate. For now, fares are buffered from the 100% rise in ATF by airlines’ fuel-price hedges, but these cannot offset physical shortages. Tourism is 3.4% of global GDP, and cross-border share would be smaller (e.g., <1% of GDP in India, where arrivals were down 17% YoY in Apr), likely the reason financial markets are not worried yet. For some EU countries, though, tourism is 8-10% of GDP and can affect growth.
In this Disruption Tracker (earlier: 22-Apr; 28-Apr), as product inventories are a bigger concern, we assess the impact of ATF shortages on the travel/tourism industry.
Capacity cuts worsened in April but mild so far; sharpest on West Asian routes
Jet fuel prices are 100% above pre-war levels. Unlike the 2022 spike (demand rose 40% post-Covid) that reversed quickly as supply responded, the current increase must destroy demand as supply response to wider cracks (+175%) may be limited till the Strait of Hormuz reopens. Airlines’ 12-36-month fuel price hedges provide buffers to limit impact on fares but are usually only 80%/60% for 3/12 months and cannot fully offset volume shortages. Capacity reductions driven by the inability to fly to/from West Asia are reversing but available seat kilometres were down 2.5% YoY in Apr, vs. 5-6% growth pre-war: weakness broad-based, but West Asia and the Caribbean saw declines.
Europe’s (ARA) jet fuel stock down 30%-> route changes forced capacity cuts
Inventories, procured at lower levels, have also helped, but are falling sharply: e.g., jet fuel stocks in EU’s Amsterdam-Rotterdam-Antwerp (ARA) storage are now 30% below pre-war levels to the lowest since 2014, with the 2-month drawdown the worst ever. This has accelerated as the flight-count rises seasonally in Eurocontrol’s 42-member network (EU + Israel + Turkey). Global leisure travel peaks during the Northern summer, with Europe leading in: (i) cross-border travel; (ii) occupancy rates.
Post-covid tourism recovery at risk but impact limited
The sharp fall in flights to/from Munich, Frankfurt and London reflect the disruption due to Europe’s ATF shortages (22% of global demand), which could intensify and derail the post-pandemic recovery in global tourism. By itself this may not disrupt financial markets: the UN estimates tourism’s direct contribution at 3.4% of global GDP, of which only some part would be cross-border. But in some EU nations, tourism is ~10% of GDP. International arrivals to India fell 17%, but their spending is <1% of GDP.
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