AF-KLM expects to spend substantially more on fuel this year due to the war in the Middle East and disruptions in the energy market. According to the airline group, total fuel costs may reach $9.3 billion by 2026.
Although its first-quarter financial results remained relatively stable, the airline group warns that the real impact of expensive paraffin is yet to come. Especially in the coming months, AF-KLM expects a solid increase in costs.
Rising energy prices are having a delayed effect on the airline industry. As a result, AF-KLM still noticed the effects of the blockade of the Strait of Hormuz and rising tensions in the Middle East to a limited extent in the first quarter.
However, for April, May and June, the group already expects to spend an extra $1.1 billion on paraffin. This highlights how sensitive airlines are to disruptions in global energy supplies.
AF-KLM has hedged part of the risk through hedge contracts. This protects about two-thirds of its fuel consumption from extreme price increases. Yet the extra costs remain huge.
...airlines use hedge contracts to partially protect themselves against extreme fuel price increases?
To cope with rising costs, AF-KLM has introduced several cost-cutting measures. These include a vacancy freeze and savings on business trips and external consultants.
The airline group is thus trying to limit the financial damage as much as possible. Despite the impending cost increase, the group did manage to improve its operating result in the first quarter.
The operating loss came to 27 million euros, considerably better than the loss of 328 million euros a year earlier. This shows that demand for aviation remains strong for the time being.
Rising fuel prices affect not only passenger flights, but also air cargo. Higher paraffin costs ultimately result in higher rates and surcharges in the logistics chain.
For forwarders, shippers and air cargo companies, this means that transport costs could rise further if the situation in the Middle East continues.
Read more about international air transport solutions on the air cargo page.
The coming quarters will be crucial for AF-KLM. If energy prices remain high, pressure on the airline industry could increase further.