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- [00:02]
A
I'm John Ostrower, editor in chief of the Air Current.
- [00:04]
B
I'm Brett Snyder, author of Cranky Flyer.
- [00:07]
C
And I'm Brian Summers. I write the Airline Observer. You're listening to the Air show, the podcast where we talk about what goes on in the business of the sky. I am back from vacation, gentlemen, and I want to say you guys did a tremendous job with last week's episode on United, but it was a bit fawning. Both of you gentlemen should put at least one quarter or in the jar, maybe two. You really drank the Kool Aid, right? They must have given you too much caviar.
- [00:35]
B
I mean, Brian's saying we drank the Kool Aid from Scott Kirby. That's rich. But for the record, Brian, I think you would have probably felt similarly if you were at the event instead of hanging out in New Zealand. But to address that last point, they did have caviar samples. I only had one. I was actually just really high on stroopwafels the entire time.
- [00:59]
A
Man, that stroopwafel buzz, that's something special today, guys.
- [01:03]
C
I want to take us outside of the United States. We've covered so much rah rah news domestically of late. I gave you a hard time about United, which, other than some small cuts in capacity, is operating business as usual. Actually, maybe more than business as usual, considering all the new passenger experience investments. But it's not just United that's pretty happy right now. Ed Bastian says demand is on fire. Even Robert Isom appears cautiously optimistic. And Bob Jordan over at Southwest, we know that he is giddy. All these guys more or less say demand is so strong that it outweighs the run up in fuel. But I've talked to some senior executives at non US Airlines recently and I don't hear such optimism. It sounds like the US Is an unusual market for a bunch of reasons, and demand is one of them. But it's not just that fuel is really expensive out there, especially in other countries. While I was on holiday in New Zealand last week, I spent some time with Air New Zealand CEO Nikhil Ravishankar. The poor guy who had been Chief Digital Officer until becoming CEO in October, is apparently some sort of digital savant. Like, the guy was super stoked when he showed me the new airport kiosks powered by what I think was an iPad. But we couldn't talk about that in our interview because as of last week. Guys, do you know what Air New Zealand was paying for jet fuel?
- [02:34]
A
16 bottle caps and 12% of New Zealand's dollar currency reserves.
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C
Yeah, I don't really know what that means, but I'll go with it.
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A
It's a lot, a lot.
- [02:43]
B
It's the equivalent of 17 bottle caps.
- [02:46]
C
Yeah, they were paying last week, early last week, about US$217 per per barrel. That was up from 85 to US$90 before the crisis. And I pushed him on how that was possible because that sounds high even by the standards that we've been hearing in the US and he told me that he was speculating, but he reminded me that markets tend to price fuel independently. Usually they're pretty much the same price. But he noted that so much of fuel right now is supply line specific. And this APAC jet fuel, it comes about 80% through the Strait of Hormuz. And he told me that a lot of the US jet fuel tends to be refined out of US crude.
- [03:35]
A
New Zealand actually has an interesting advantage. Do you know the only prime minister on the face of the earth who used to be a CEO of an airline?
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C
Yes, I do, Christopher Luxon.
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A
There you go.
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C
Air New Zealand, former CEO.
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A
So fun trivia for our listeners. But back to fuel dynamics. Yeah, the US overwhelmingly uses is domestically refined jet A except for the west coast which is actually a weird market because actually isolated because of limited distribution pipelines. So about 15% of that that goes into the west coast comes from South Korea which gets 70% of its oil from the Middle East. So we go round and round. It literally is a great illustration that the world is round. Just you go far enough around, something goes through the straight of Hormuz that gets is getting affected here.
- [04:22]
B
I think he just wanted to make it clear that the world is around. Yes, some of our listeners may disagree.
- [04:28]
A
If you are still believing the world is flat in 2026, this is not the podcast for you.
- [04:33]
C
And of course non US airlines have another problem. Fuel is priced in US dollars and that is a real pain for airlines from countries with weak currencies. So last week I was going from Queenstown to Auckland and I bought a full Y ticket because because it was a last minute decision. So the most expensive ticket that you can buy about an hour and 50 minute block time and it was priced at about 500 New Zealand dollars one way which sounds like a lot but that is only $300 USD for a last minute ticket. So a good fare priced in New Zealand dollars. But they gotta go out there and buy fuel in US dollars and there's a major gap there.
- [05:19]
A
Yeah, it's an open market and that open market Runs on dollars, by the way. If you don't know why that is, Google Bretton woods and you'll get a history lesson as to why that is the case. I would also say, on top of that, unless you're buying Iranian oil, and in that case, you can pay with Chinese renminbi. And we're going to need at least one episode on a very different podcast to unpack the implications of that for the world economy.
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C
You'll need that one, John.
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A
Yeah, I will. I will.
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B
I don't know. That might be the most boring podcast ever. Can we talk about mercantilism?
- [05:51]
A
All I'm saying is widen your horizons, gentlemen. There's a whole wide world out there. Okay, Countries can buy crude and refine it locally, but that's only if they have the capacity. Or they can buy jet fuel directly from these other countries and they can go on tankers. Either way, they have to buy it. Which means that if one country is willing to pay more for that tanker, it will be rerouted to the highest bidder. New Zealand is a. Is a rich country, of course, and they'll be able to pay for it until demand destruction sets in. If you're Pakistan, Indonesia, Indonesia, Vietnam, Thailand, those are not rich countries. And we're probably in the very early stages of what is going to become very rapidly a global energy crisis heading into April.
- [06:32]
B
Am I the only one just trying to think of arbitrage opportunities here? Like, you guys want to go in and buy a tanker together?
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C
I've heard that you can't, actually. Oh, there was an article on that recently somewhere.
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B
Like someone tried to do that.
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C
I think they tried to buy a barrel of fuel or a barrel of oil, and they couldn't do it.
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B
Well, you could buy a barrel and then you could fill it with oil, or you.
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A
Or you can get like, lot of empty Coke cans. Fill those with oil.
- [06:55]
B
Yeah. All right, so fuel's going to be very expensive for those who can get it, I guess, but more expensive in some places than others. In the currency thing, it's. It's a mess. But in the US what we keep hearing is that so far, demand can cover that increase. I think the 40 people on my flight yesterday on an A319 might disagree. But still demand can cover that increase. Is that what you're saying, Brian, that that is not the case for these airlines outside the US you're talking to?
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C
Well, there are a lot of airlines outside the US And I admit that I haven't spoken to any big network airlines in, In Europe but the airlines that I have spoken to and I spent the most time with Air New Zealand say that the US Is a very special market. And a lot of airlines in wish that they could have such a robust domestic market where travelers apparently right now are so desperate to travel that they'll pay any price or almost any price. But speaking specifically about New Zealand, it's a much smaller domestic market. And Ravi Shankar told me that Air New Zealand competes with cars or even ferries, at least in parts of its domestic market.
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B
And sheep. Don't forget the sheep.
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C
Yeah, Brett, I'm glad to see that you didn't lose your sense of humor while I was on vacation.
- [08:17]
B
I would never give you the satisfaction. Yeah.
- [08:19]
C
There is also the long haul market, and we've heard that long haul demand for all airlines is very robust. But Ravishankar said that Air New Zealand has been unable to raise prices enough. And so it's cutting about 5% of its flights through early May. And Jetstar New Zealand is doing the same as well. I think it's cutting about 12% of its flights. About the only positivity I heard from Air New Zealand executives was, at least we don't fly the A380. To which I know what Qantas would respond. At least our 787s can make it to New York.
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B
Ooh, Trans Tasman battling. Gotta love that.
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C
It's almost as good as United American. Almost.
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B
You know, that may be what Qantas says publicly, but in private, they're probably like, yeah, those airplanes suck. Look, we can't blame them. It's not this management team that failed to order Triple Sevens. But I digress.
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C
Yeah, you know, look, New Zealand might be a special case because it has limited competitions with Gulf carriers. There is some leakage to Europe, and Air New Zealand is routing some people through California where they pick up United to fly to Europe. I know Scott Kirby said that was producing a nice bump in traffic. Ravishankar said it's helpful, but not material. We've also talked about European carriers. It's probably a lot better for them because they don't have to compete heavily with Gulf carriers now. But I'm going to bet they'd rather
- [09:46]
B
have cheaper fuel or more sheep in the fleet, perhaps.
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C
All right, let's stop talking about sheep and let's go to the other side of the world. I also recently spoke with Jan Malan, the chief commercial officer at Wizz Air. Our discussion was delayed about a week as he needed some time to move his remaining airplanes out of the Middle East. Malan is an American and there's something unique about Americans. We tend to have more optimism than the average person outside of the United States. So Malin tried to spin me. He said we have a 321neos with a unit cost advantage and it can be a competitive advantage against other carriers. Of course, not Ryanair, but he did name some other airlines over which they have an advantage. Brett, you want to guess what those powerhouse airlines are?
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B
Just any airline that doesn't matter?
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C
Yeah, pretty much. Malin said they have a nice advantage over airlines like Croatia Airlines, Air Montenegro, Bulgaria Air, and an airline that I wasn't sure still existed, but apparently it does. Tarem, the kinds of airlines that you feel really bad for, proud member of
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B
Sky Team sir, those are barely airlines. I think most of those are government projects. So that's kind of silly to compare to them. But if you are a European lcc, I mean this goes back to what I was saying earlier. You know, on the demand side, how many increases can you really push through when you know you're, you're trying to live on low fares?
- [11:22]
C
Yeah, it's a good question. Malin's going theory, which is of course self serving, is that cost conscious Europeans are going to stay close to home this summer, spooked by high prices for long haul trips. And then don't forget that the United States is a little bit scary now for certain segments of Europe. Europeans who may not want to visit.
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A
Ryanair is crazy hedged for the next year. And Wiz hedges too, right?
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C
Yeah, not quite for the next year, but certainly for the next six months or so. Wiz, according to Malan, is 72% hedged from April 1 to June 30 and then 61% hedged for July 1 to September 30. They're also hedged on the crack spread, which is a big deal. So of course if things normalize before fall, Wiz is going to be okay. But I'll remind you guys that nobody has any idea what's going to happen. And it's not like you can get easy hedges right now for the fall and beyond.
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B
Yeah, even if you do get a hedge and not to get into like the type of hedges that we're doing here, maybe it's a collar, whatever it is. But the point is you may have a hedge, but they may not have the oil to deliver to you if there's an actual shortage. So we still have a bigger issue that could be coming down the pike. But still it sounds like things Aren't that bad for Wiz, relatively.
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C
Yeah. Yes and no. Brad, you remember John's piano falling metaphor from a few weeks back? Like, I admire how the US carriers say, ah, nothing to see here, but I still don't get the sense that that's the case in the rest of the world. Malan is the new Chief Commercial Officer at Wizz Air and he's kind of out playing whack a mole. So he's spending so much time making cuts and thinking about what's going to happen in the future that, you know, maybe it's not the case. But I have a feeling that all executives in this position can lose sight of the long term priorities while they're dealing with these crises. And as an aside, I'll throw a quarter in the jar here. I think one of the great things that Scott Kirby can do is like two things at once. And I think that's a big reason why he is so good at what he does. Ravi Shankar over at Air New Zealand has a similar problem. Right. He's that rare airline executive who understands how to use AI to change the travel experience and then take costs out of the business. It's something that he was brought on to do. But again, when you have to deal with a fuel crisis like this and you're trying to cut routes, you're trying to figure out what the future is going to be like, it's hard to focus on any other priority. That's enough for me. Let's take a break and when we return, John is going to tell us the latest on this fuel crisis. John, I hope you have some good news for airlines like Air New Zealand and Wiz and every other non US airline that has real concerns right now about how it will cover its cost.
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B
Guys, what's the first thing you think of when you think of an Arizona summer? Hot.
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C
Really hot.
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B
All right, so I'm gonna guess you've never been to Flagstaff. I actually haven't since it's 7,000ft up. Summers are spectacular with average high temps in the low 80s. And don't go looking for cacti. Flagg is in the middle of the world's largest ponderosa pine forest.
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C
Yeah, but it's at least a couple hour drive from Phoenix. Right? That's a pain.
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B
It is, but that's why you should fly to Flagstaff. Pulliam Airport. Since 2019, they've had nonstop flights to DF and this summer that daily flight is getting an upgrade to mainline on an A319.
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A
That's exciting. It's not far from the Grand Canyon, right?
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B
It's only about 90 minutes away from the South Rim. And by the way, It's a quick 45 minute hop south to the red rocks of Sedona. Oh, and in winter, it's just a half hour's drive to the Arizona Snow
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A
bowl, where there's good skiing in Arizona. Weird.
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B
When I lived in Phoenix, locals would go all the time. I, however, am more of a summer kind of guy.
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C
This sounds like a great spot, but none of us on the west coast are going to connect through DFW to get there.
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B
American also runs several daily flights from Phoenix, which is great, but you'd think someone would take a shot at something west or north again, considering they get 5.5 million annual visitors, most of whom
- [15:58]
A
end up driving, ahem, other airlines. There are a lot of drivers looking for you to make their trip to Flagstaff easier.
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B
Flagstaff Airport, your connection to grand destinations. And we are back. Let's talk oil and fuel prices and supply. What's the latest? John, let me ask a stupid question. Is there any good news out there?
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A
Well, heck yeah, man. There's actually a rocket to send four humans to the moon on the launch pad in Florida right now. So that's pretty awesome.
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B
Let's go, Artemis 2. Come on.
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A
Yeah. So, yeah, leaving the Earth looks pretty awesome right now.
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B
That is quite the way to say it.
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A
Look, I've spent the last month studying global jet fuel and the market and all the dynamics around how oil moves and how airplanes get their gas and whoa, boy. We're in a state of epic upheaval. I think it's really important. We may actually have ended up doing this episode backwards, but it's okay. But I want to pause for a moment to bring our listeners up to speed on how all this works.
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C
Ladies and gentlemen, class is in session.
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B
Professor Ostrower has arrived.
- [17:11]
A
I promise, I promise to keep it interesting. Okay? One barrel of crude cannot create one barrel of jet fuel. Each 42 gallon barrel only produces about three to four gallons of jet fuel. It's also known as a middle distillate along with diesel fuel that comes out of the refining process. So, yeah, big picture. Jet fuel is significantly more expensive than crude oil because of the specialty refining and the storage. But also, and I thought found this really, really interesting, gasoline demand globally for cars has effectively peaked as China in particular has adopted electric vehicles. So you've got jet fuel riding on the back of a declining need as aviation's need for fuel continues to grow at about 4% per year, give or take. But also because volumes of gasoline are just net higher, even with demand falling, jet fuel has to command a higher price to justify getting itself into a tanker. So that's really the open market for you. But look, Brian talked earlier about the crack spread. According to IATA, as of March 27, Brent crude was selling for $113.75, but the crack spread was $81.44 above that. So effectively $195 a barrel for jet fuel on average. And in Asia and Oceania, that's about $208. That's Ravi Shankar's higher price, or apparently
- [18:37]
B
217 there in New Zealand.
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A
Yeah, right. And that's just the average. Right. There's, there's a whole bunch of things that go into that. So the crack spread is effectively taking into account shipping costs, storage costs, refining costs. That's in a normal market. Well, when the Strait of Hormuz closes, everything spikes. Okay? Globally, last year, the world refined about 7.9 to 8.6 million barrels per day of jet fuel. February was the low, July was the high, as you'd expect. But for the sake of context, US airlines consumed about 14 to 15% of that last year. Fun fact. One full A321neo, 207 barrels of jet fuel and one full 787, 9, 795 barrels of jet fuel. So yeah, since the strait closed on February 28 to any kind of regular traffic, effectively cutting off 20 million barrels of oil products to the world, the hose of distribution in the supply chain chain hose, mixed metaphor, sorry, has been crimped. And so effectively what that means is that airplanes that are being fueled in Europe and, and Australia and Asia fueled from Middle Eastern derived jet fuel came out of the ground and left the Middle east before the conflict even started. That means that a gigantic air bubble has been built up in this hose. I did a deep dive on this last week for the air current in the last jet fuel tanker to pass the strait, which left Kuwait, arrives in Malta on April 9. The last tanker of jet fuel for the UK arrives on April 2. Remember what I said about Wiley Coyote ing this thing? This industry outside of the US has been off the cliff for a few weeks and April is when airlines start looking down.
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C
What about Saudi Arabia, John? Has it shifted capacity to its pipeline?
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A
This is actually really important. Good question. There's an east west pipeline that runs to the Red Sea port of Yanbu on the opposite side of the country. So totally bypassing the need to travel through The Strait. The pipeline right now is at full capacity running at 7 million barrels a day. However, and this isn't very important, however, those pipelines carry only crude, not refined jet fuel. So they have to get to their destination and go through the refining process, which may be limited by local refining capacity. And oh, by the way, the journeys of those tankers going through the Red Sea have to make a weeks long trip to Europe, Asia and elsewhere.
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B
And then there's Australia and New Zealand, which I assume is using sheep to transport the oil you really like A bit Brett shows cultural awareness. Man, they love their sheep over there.
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A
Yeah, we operate mostly on stereotypes and biscoff. Thank you very much. That's good.
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B
Stroopwafels. Keep it consistent.
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A
Stroopwafels. Sorry, sorry, sorry.
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B
Okay.
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A
Yeah. Air New Zealand is at the end of a long chain on the energy supply and Australia is going to be joining them as the poster children for probably the first world energy crisis. A lot of that jet fuel coming into Australia comes from Asia. So Australia imports 85% of its jet fuel and 92% of that comes from five international sources. China, South Korea, Taiwan, Malaysia and Singapore. And you guys want to guess where they get their crude from?
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B
Ooh, ooh, ooh, I bet. I know. Is it the Strait of Hormuz?
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A
Yep, it is. But it's really interesting. I hit on the sort of the open market dynamics earlier and Chris Bowen, who is actually the climate and energy minister in Australia, captured this dynamic really beautifully. By the way, if you want a model of good governance and open government, Australia is fantastic. They post transcripts of every single press conference and interview the minister does and defined by topic and searchability. It's amazing. Every country should follow suit. But I digress. Bowen was asked about sort of what the, what the dynamic is being so far away from where the crude that's imported and the jet fuel is coming from. That's Asia, of course, here. Right. The government's actually stepping in to use export financing to buy fuel. And he really captured this beautifully. But I think this is going to be something that, that's going to persist globally. He says, quote, if you've got cargo in Korea and it's $25 million more expensive than it was a couple of weeks ago, which is the case, and you're an oil company and you're looking at the oil price and saying, well, we can buy that now, but it'll take a while to get to Australia. By the time it gets here, this war might have ended and the oil Price might have fallen and we're exposed. And if you do that multiple times, you're exposed to hundreds of millions of dollars of risk. This is really fascinating. They're stepping in to buy and finance the arrival. So there is less price volatility. Like Australia has more jet fuel now than it did before this crisis started. But the problem is demand for fuel in the country, particularly for gasoline and diesel, Is jumped about 100% as people have worried about the supply.
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B
Let me make sure I understand. You're saying because of the chance, like the war might end and oil will go down, they're just. They don't want to send it. They're just waiting.
- [23:54]
A
What he's getting at is the idea that there is a risk that the price may fall by the time it gets to Australia. In that case, they will have missed an opportunity to send it somewhere else for a much higher price. Yeah, yeah, that's. This is the whole open market demand. Right? This is.
- [24:10]
C
This is.
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A
This is oil trading at a. At a geopolitical level.
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B
Right. So that's the point. They don't want to send it. Why send it that far when it might. Might have lost a bunch of value on the way or something.
- [24:22]
A
Exactly. And those who can pay for it will pay for it, and countries that can afford it will do so. So, you know, again, if you're a Pakistan or an Indonesia or the Philippines, it's a very different dynamic.
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C
John, let's jump to the other side of the world now. Does Europe have it any better?
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A
Oh, God, no. No, no. In fact, it actually may be worse.
- [24:46]
B
Oh.
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A
There are structural issues within Europe that were in place before this crisis began that made this really, really, really vulnerable. First, European refining capacity has been dropping steadily in recent years. Europe took about 400,000 barrels a day of refining capacity out of operation last year. That was a function of dropping demand, more competition, more stringent regulations, environmental regulations that made them really economically unviable. And then on top of that, you add sanctions deliberately designed to cut off Russian oil and gas from getting into the eu. That was a very, very deliberate attempt to deny Russia a funding source for their war in Ukraine. The latest round of sanctions also bars European countries from buying jet fuel refined from India. That crude came from Russia, so they were cutting off the secondary benefit, effectively circumventing a direct transaction. Actually, interestingly enough, IATA warned about this last November. It was actually really a rather prescient document. They wrote, quote, the growing reliance on imports combined with uneven infrastructure development underscores the risk of localized shortages and price volatility, particularly if geopolitical shocks or sanctions constrain global jet fuel availability. Further, Europe relies on the Middle east for half of its jet fuel imports, according to data from Kepler and Vortexa. Half guys and IATA really hit the nail on the head. They said, quote, jet fuel scarcity in Europe is largely reliant on commercial inventories that typically amount to just over one month of demand. April is going to be an unprecedented month for this industry. Guys, I just buckle up.
- [26:32]
C
Professor Ostrower, thank you for that lesson. I don't know what we would do without you here on the Air Show. We'd probably have a lot more episodes about Detroit and Spirit.
- [26:44]
B
Oh, do we have time?
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C
You've been listening to the Air Show. If you have suggestions or questions for us, or if you're interested in sponsoring the podcast, go to our website theairshow podcast.com to get in touch.
- [27:00]
B
Leo Duran produced and edited this episode. Our theme music is by Joshua Mosher. Thanks for listening and we'll be back soon.