Europe summer travel on the line as airlines’ jet fuel supply dwindles

Peak travel season is almost here, but the International Energy Agency’s head told CNBC that Europe may struggle to meet surging jet fuel demand as the Middle East crisis continues.

The IEA’s chief Fatih Birol said that Europe needs to secure alternative sources of jet fuel as the Strait of Hormuz, which previously carried roughly 20% of the world’s oil supply, remains closed.

“In August, jet fuel demand is about 40% higher than in March, so demand will increase, and if the supply stays where it is now, the challenge can be even bigger, but I very much hope that Europe will be importing energy,” Birol said in a conversation with CNBC’s Steve Sedgwick at CONVERGE LIVE in Singapore on Thursday.

Middle East refineries provide Europe with around 75% of Europe’s jet fuel but production from those facilities “is basically now almost zero,” he added.

“The rest is coming from some big Asian countries that have now export restrictions, and Europe is now trying to get it from the U.S. and Nigeria. If we are not able to get in Europe, additional imports from the countries now, we will be in difficulties,” he added.

European carriers are more exposed than their U.S. counterparts because the continent relies more heavily on fuel imports.

Birol flagged that Europe may need to take some measures to “reduce the air travel,” as a result, with some airlines, including Lufthansa and SAS, already reducing flights.

Birol warned last week that Europe may run out of jet fuel in six weeks, with analysts echoing similar warnings. “We are facing the biggest energy security threat in history,” Birol told CNBC on Thursday.

Several European countries depend on the economic boost that comes from increased air travel during the summer season. Air connectivity generates 851 billion euros (nearly $1 trillion) in GDP for European economies and supports 14 million jobs, according to ACI Europe.

Jet fuel prices increased 103% by the end of March compared to the month prior, according to the International Air Transport Association.

“Airlines normally run at a single-digit operating margin and spend anywhere from 20 to 40% of the revenues on fuel,” so “rising jet fuel prices push the industry into operating losses,” Alex Irving, Bernstein’s head of European Transport Equity Research, told CNBC.

Irving said that higher ticket fares are required for the industry to remain profitable, but these risk alienating customers. Airlines will have to cut costs by cutting capacity and reducing flights to support higher ticket prices.

Some airlines have already started cutting flights and routes. German carrier Lufthansa is cutting 20,000 short-haul flights through to October, which will save 40,000 metric tons of jet fuel and reduce unprofitable flights.

Scandinavian airline SAS said its cancelling 1,000…