Airfares may climb up to 25%: Report
New Delhi: Geopolitical disruption and refinery constraints are impacting jet fuel supply, which raises airline costs and could translate into higher crack spreads, thereby pushing
New Delhi: Geopolitical disruption and refinery constraints are impacting jet fuel supply, which raises airline costs and could translate into higher crack spreads, thereby pushing airfares, according to a McKinsey report. Noting jet fuel demand is set to rise ahead of the summer travel season amid depleted inventories, the report highlighted fuel prices have surged mainly due to crude oil trends, while supply has been constrained airline ticket prices. According to the report, jet fuel prices have surged mainly due to crude oil trends, while supply has been constrained because of reduced refinery production from major Gulf-region and Asian jet fuel exporters (which together supply 40 per cent of the world's jet fuel).
This second factor is reflected in the jet fuel "crack spread"--a measure of the difference in price between crude oil and the fuel products that are refined from it, the report said. Noting the historical prices, the report said the jet fuel crack spread has tended to linger around USD 20 per barrel or less, but in 2026, it could end up averaging more than USD 50 per barrel."In recent history, the jet fuel crack spread has tended to linger around $20 per barrel or less, but in 2026, it could end up averaging more than $50 per barrel," it said. While a "potential increase in tanker traffic through the Strait of Hormuz" could reduce immediate fuel price pressure, "jet fuel prices and crack spreads could remain volatile while inventories are rebuilt and supply chains normalise," McKinsey noted.
In the near term, Asian countries are unlikely to bridge the gap, as China, India and South Korea have all moved to at least partially restrict exports following the geopolitical conflict. While other exporting regions may offer some relief, it is unlikely to be sufficient to offset the shortfall, the report noted. Furthermore, several global refineries were already operating at high utilisation levels before the conflict began, leaving little spare capacity to increase output further. The report further noted "existing inventories have been doing heavy lifting to bridge the supply gap." Accordingly, if tanker traffic in the Strait increases, jet fuel prices will likely fall. However, as countries may be restocking and extending strategic storage, jet fuel prices will likely stay "elevated for several months even after tanker traffic resumes to previous levels." Higher refining margins for jet fuel have prompted refiners to increase output, partly easing supply concerns, though prices may remain elevated for months amid ongoing restocking and strategic storage rebuilding.
The BriefWire