TURBULENCE OF EXPENSES

In the context of ongoing military conflict in the Middle East, shortages of aviation fuel are contributing to increased costs for passenger air services across Europe and Asia. The crisis is particularly acute during the peak summer holiday season. According to the International Air Transport Association (IATA), airlines are at risk of experiencing a 50% reduction in revenues in the second half of 2026.

Risks to civil aviation were discussed at the 82nd annual IATA meeting and the World Air Transport Summit in Rio de Janeiro. A review was also conducted on the positive trends in Azerbaijan's aviation sector.

Fuel crisis

Ongoing geopolitical tensions have led to a global crisis and shortage in the jet fuel market for the last three and a half months. The disruption of the Strait of Hormuz, the destruction of production facilities, and damage to port terminal infrastructure have all contributed to this situation. Consequently, Persian Gulf countries were compelled to curtail oil product output. This decline affected jet fuel production due to terminal congestion and the inability to store aviation fuel over extended periods.

Since the onset of the Middle East conflict until early June, jet fuel prices in Southeast Asia increased by 100%, while in Europe they rose by over 70%. These regions traditionally imported approximately one-third of all supplies from Persian Gulf countries. The situation is further compounded by a 13% decrease in European jet fuel production compared to pre-pandemic levels, with a 42% decline in the UK.

Even oil-producing countries encountered challenges, having to restrict aviation kerosene exports in order to protect domestic markets. For instance, Russia has prohibited external shipments until 30 November.

By late April, ahead of the summer holiday season, heavily affected airlines were forced to significantly raise airfares as airport fuel reserves hit minimum levels. Consequently, tour operators experienced significant declines in bookings and revenues.

In response to these concerns, airlines began reducing the number of flights operated, aiming to maintain operational efficiency and ensure the availability of fuel resources. The International Energy Agency has forecast that, should current trends continue, the aviation market will face a major systemic crisis this summer. Jet fuel stocks in several world regions remain critically low, posing a threat to flight schedules during the peak travel season.

The carriers most severely affected are those based in Persian Gulf countries, which are currently at the centre of the conflict. According to IATA, they suffer the largest financial losses and may enter loss-making territory. The closure of these airports, which previously accommodated a significant proportion of flights between Europe and Asia, has had a substantial impact on air travel. In response to these challenges, leading global airlines have also revised their route networks, cutting or redistributing flights to reduce pressure on these troubled corridors. This has had a significant impact on global air logistics and has led to a notable increase in fuel consumption. The situation is further exacerbated by cancellations among major Arab carriers.

"Europe is facing significant cost pressures. While pre-war hedging covers 70% of fuel needs, the expiration of these contracts will inevitably lead to higher expenses for the industry," IATA noted.

Revenue decline

IATA's updated financial forecast for 370 member airlines representing 85% of global air traffic projects that profits may halve in 2026 due to rising fuel prices. Net industry profit is now forecast at $23 billion compared to the previously forecast $41 billion.

In June, the global fuel market remained stagnant. Instead, the industry is facing a dual crisis: rapidly rising jet fuel costs and critically low supplies of "eco-friendly" synthetic aviation fuel.

Marie Owens Thomsen, IATA Senior Vice-President for Sustainability and Chief Economist, stated during the meeting that "average jet fuel prices are rising much faster than crude oil: the average jet fuel price in 2026 is expected at $152 per barrel against Brent crude at $95." She emphasised that financial and oil and gas sectors traditionally yield higher profitability than aviation: The IATA has revised its estimation of the fuel share in airline costs. Previously, the IATA had estimated that fuel would account for about 27% of airline costs in 2026. However, this forecast has now been revised upward to 31%.

Willie Walsh, Director General of IATA, has stated that jet fuel will account for approximately one-third of operational expenses. It is anticipated that industry operating costs will increase by 13% in 2026, reaching $1.12 trillion, compared to the previous year. This is largely due to a surge in fuel expenses, which are expected to rise by almost 40% to $350 billion. Despite carriers absorbing part of the fuel cost increase and improving efficiency, net margins may shrink from 4.2% in 2025 to 2% this year.

Azerbaijan forecast

Meanwhile, Azerbaijani airlines have maintained stable flight schedules and competitive pricing overall. The availability of domestic feedstock and the reconstruction of Baku's Heydar Aliyev Refinery (BOR) have significantly strengthened import substitution on the local fuel market.

BOR's state-of-the-art facilities are equipped to produce diesel and petrol that meet the Euro-5 standard. The company is committed to ongoing upgrades in its aviation fuel production sections, ensuring compliance with international standards for jet engine fuel, including TS-1a kerosene fractions. Once BOR reaches full capacity, jet fuel output will increase to 1 million tonnes per year; the current output is around 0.7 million tonnes.

The country's strategic approach to fuel management involves maintaining a balanced supply, with exports being permitted only when there is a domestic surplus. The majority of jet fuel is used to meet the growing demand of Azerbaijani carriers AZAL and Silk Way. These companies refuel under special regulated domestic tariffs, which help to keep ticket prices stable. Jet fuel is also supplied for transit and other foreign airline flights landing in Azerbaijan. In 2024-2025, the major buyers were Luxembourg, Russia, Türkiye, the US and France.

"Azerbaijan's current situation is not a serious issue. The country has both the necessary fuel volumes and developed logistics for supply," stated Rafael Schwartzman, IATA Regional Vice-President for Europe, in Rio de Janeiro. He added that Azerbaijan and other Central Asian countries need clear aviation strategies to objectively assess their capabilities and competitive advantages for becoming aviation hubs. Kazakhstan and Uzbekistan benefit from large domestic markets supporting extensive international traffic. For Azerbaijan, developing air connectivity is equally important and represents its main growth reserve, according to IATA's vice-president. In summary, the sector already possesses all the necessary technologies and management solutions. However, implementing these requires long-term planning and correct prioritisation.