How will passengers be affected by possible jet fuel shortages?

Airlines face material operational disruption: Ryanair warned it may cancel 5%–10% of flights through May–July if the Strait of Hormuz remains closed, and SAS has already cut ~1,000 flights due to surging jet fuel prices. Kpler data shows 18.8m tonnes of jet fuel transited the Strait last year (just over 20% of seaborne exports), supply shifts are already occurring and carriers are implementing measures (route cuts, temporary surcharges like Aurigny’s £2 fee) that will likely push fares higher and pressure margins. Longer‑term implications include a potential fleet refit toward aircraft 15–20% more fuel efficient, but deliveries would largely occur post‑2030, so near‑term stress on aviation economics is expected.

Analysis

A supply shock concentrated in seaborne jet fuel (highly inelastic at short notice) will create asymmetric pain: airports with single-sourced fuel lines and tight storage will see outsized cancellations and revenue loss, while carriers able to reallocate capacity or buy premium cargo/fuel space will protect long-haul yields. The mechanical effect is not uniform across airlines — thin-margin, short-haul-focused low-cost carriers have the smallest buffers and the least ability to pass costs without collapsing load factors, whereas network carriers and cargo providers can selectively shield profitable flows.

Second-order winners include refiners and traders that can redirect product flows and capture widened jet/ULSD cracks, and tankers that earn higher freight for transatlantic repositioning of product cargoes. Airports and regional operators that lose service will see local tourism and business travel demand shift to alternate hubs, concentrating pricing power at fuel-secure airports. Over months, persistent higher fuel costs will accelerate airlines’ CAPEX re-evaluation: fleet renewal demand rises structurally, but delivery lags mean OEM benefit is multi-year and dependent on airlines’ willingness to finance orders.

Timing and reversal: expect volatile operational disruption on a days-to-weeks cadence (NOTAMs, rationing) and credit/margin stress over 1–6 months if shipping remains impaired or refiners can’t re-route output. Reversal catalysts are reopening of chokepoints, targeted product releases or rapid ramp-up of transatlantic jet fuel flows — any of which would compress cracks quickly. Structural downside for LCCs persists for years if fuel remains elevated, but the peak pain window for trades is the next 1–3 months while inventories are worked through.

Key Decisions for Investors

• Short RYAAY equity or buy 1–3 month puts (size 0.5–1% NAV): entry now while dealer liquidity is still available; thesis is operational cancellations and squeezed margins. Risk/reward: asymmetric—limited time decay vs large downside if summer schedule is curtailed; hard stop at 15% adverse move or hedged by buying short-dated calls.
• Long NYMEX ULSD front-month calendar spread (long front, short back month) for 1–3 months to capture near-term jet fuel squeeze; complementary long positions in refiners with strong jet exposure (e.g., VLO or PSX, 3–6 month hold). Risk/reward: pays off if jet cracks widen >$5/bbl; hedge by short Brent calls if crude rallies without product tightness.
• Long product tanker exposure (e.g., STNG) via 3-month call options or small outright position to capture higher transatlantic product freight and repositioning premium. Risk/reward: high gamma on short-dated calls; cap position size to 0.5% NAV as freight is volatile and sensitive to staging changes.
• Small directional long on Boeing (BA) via 18–36 month call spread (buy cheap long-dated calls financed by selling higher strikes) as a tail hedge for multi-year fleet replacement demand; size 0.25–0.5% NAV. Risk/reward: low near-term payoff but convex if airlines accelerate orders once pricing stabilizes and financings reopen.