Airlines around the world are facing mounting financial pressure as volatile jet fuel prices continue to drive up operating costs, the International Air Transport Association (IATA) has warned.
The warning was issued by IATA’s Head of Fuel, Daniel Chereau, during the S&P Global Energy Middle East Petroleum and Gas Conference, according to a Reuters report released on Wednesday.
Chereau said many airlines have been significantly affected by sharp price fluctuations in the jet fuel market, while some carriers lack the financial capacity or market access needed to hedge against rising fuel costs.
Jet fuel remains one of the largest operating expenses for airlines, making fuel price volatility a major challenge for the aviation industry.
According to IATA, the impact of rising fuel costs varies widely among airlines depending on their level of exposure and their ability to implement fuel hedging strategies.
Fuel hedging involves the use of financial instruments such as futures contracts, swaps and options to lock in fuel prices in advance. The strategy helps airlines manage risk, reduce exposure to sudden market shocks and improve budgeting certainty.
Chereau noted that airlines with more sophisticated hedging programmes are generally better positioned to absorb fluctuations in fuel prices and protect their profit margins.
However, carriers without hedging arrangements remain highly vulnerable to unexpected increases in jet fuel costs.
He explained that widening crack spreads have become a major driver of rising fuel expenses across the aviation sector.
Crack spreads represent the difference between the cost of crude oil and the market value of refined petroleum products such as jet fuel. Higher crack spreads typically translate into increased refinery profit margins and more expensive aviation fuel.
According to Chereau, jet fuel refinery margins have reached unprecedented levels in some regions.
He disclosed that crack spreads in North West Europe climbed to more than $121 per barrel in March, compared to approximately $30 per barrel before geopolitical disruptions emerged in late February.
The sharp increase has intensified cost pressures for airlines already dealing with operational challenges and fluctuating travel demand.
Chereau also warned that signs of demand disruption are beginning to appear within the aviation sector.
He attributed the emerging trend to a combination of elevated fuel costs, flight cancellations and occasional fuel shortages in certain markets.
The development underscores the growing vulnerability of the global aviation industry to energy market disruptions and geopolitical tensions.
In Nigeria, jet fuel hedging is not currently practiced by airlines or aviation fuel marketers. This leaves local carriers fully exposed to global fuel price movements as well as foreign exchange volatility, which can further increase operating expenses.
Industry analysts say the absence of fuel hedging mechanisms in Nigeria makes domestic airlines particularly vulnerable during periods of rising energy prices, potentially leading to higher airfares and increased financial strain on operators.
As global fuel markets remain uncertain, aviation stakeholders are expected to closely monitor developments in refining margins, crude oil prices and geopolitical events that could further influence jet fuel costs in the coming months.
