FT Schools - Airline fuel crisis
IB Syllabus links
| Syllabus unit | Key ideas for discussion |
| BMT 3: STEEPLE analysis |
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| 1.3 Organizational objectives |
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| 3.2 Costs and revenues |
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| 5.6 The local and global supply chain process |
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| 5.7 Contingency planning and crisis management |
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| Key concept: Ethics |
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Introduction: Airline fuel crisis
Airlines worldwide are preparing contingency plans due to fears of jet fuel shortages caused by the prolonged geopolitical conflict in the Middle East. Disruptions – particularly around the Strait of Hormuz – have reduced fuel exports from key supplier countries like Kuwait, leading to uncertainty about future availability. While many airports currently hold reserves lasting several weeks, airlines lack assurance about supply beyond the short term.
Executives from major airlines, including Air France-KLM and easyJet, warn that shortages could force flight reductions, especially in fuel-dependent regions such as Southeast Asia. Aircraft cannot carry enough fuel for return journeys, making overseas refuelling essential. Some countries, like Vietnam, are already considering limiting flights.
Fuel prices have surged dramatically – doubling in recent weeks – placing financial strain on airlines. For example, Scandinavian airline SAS has cancelled flights due to rising costs. US airlines such as United, Delta, and American Airlines face billions in additional expenses.
The case highlights the need for crisis management to tackle supply chain vulnerability, as regions like Europe and Australia rely heavily on imported fuel. Export restrictions from countries like China and South Korea are worsening the situation. While some airlines like Ryanair remain confident about short-term supply, industry leaders warn that this could become a major global supply issue.
Overall, the situation demonstrates how external shocks can disrupt operations, increase costs, and force strategic decision-making in the aviation industry.
The article and exam questions can be found on the FT Schools website here.
Read the FT article above and then answer the two sets of questions:
Set 1
| (a) | Define the term crisis management. | [2 marks] |
| (b) | State two consequences of supply chain disruption for airlines. | [2 marks] |
| (c) | Analyse two different external factors that influence airline decision-making. | [6 marks] |
Answers
(a). Define the term crisis anagement. [2 marks]
Crisis management is the process of identifying, responding to, and recovering from unexpected events that threaten a business’s operations or reputation. It involves making decisions and taking actions to minimize disruption and damage.
Award [1] for a definition that shows limited knowledge of crisis management.
Award [2] for a definition that shows clear and accurate knowledge of crisis management, similar to the example above.
(b). State two consequences of supply chain disruption for airlines. [2 marks]
Possible answers include:
- Higher operating costs
- Flight cancellations or reductions
- Delays in fuel supply (delivery of fuel)
- Lower profits/reduced profitability
- Higher ticket prices
- Loss of customers/customer dissatisfaction
- Reduced market share
- Cash flow problems
- Operational uncertainty
- Damage to brand reputation
- Reduced staff working hours
- Increased dependence on alternative suppliers
- Lower shareholder confidence
- Employee redundancies (in the long term).
Mark as a 1 + 1.
(c). Analyse two different external factors that influence airline decision-making. [6 marks]
Posssible answers include an analysis of any two of the following:
- Geopolitical conflict can influence airline decision-making because wars or political tensions may disrupt fuel supplies and increase uncertainty. In the case study, conflict in the Middle East and disruptions around the Strait of Hormuz forced airlines to prepare contingency plans and consider reducing flights.
- Changes in fuel prices can affect airline decisions because fuel is a major operating cost. The case states that fuel prices doubled in recent weeks, leading airlines such as Scandinavian Airlines to cancel flights and other airlines to reconsider routes and operations to control costs.
- Government policies and export restrictions can influence airline decisions by limiting access to important resources. In the case study, export restrictions from countries like China and South Korea worsened fuel supply problems, forcing airlines to adapt their operational strategies.
Mark as a 3 + 3
Award [1] for identifying a relevant external factor, [1] for explaining this, and [1] for appropriate application in the context of airline decision-making, up to the overall maximum of [6].
Set 2
| (a) | Define the term contingency planning. | [2 marks] |
| (b) | State two external stakeholders affected by fuel shortages. | [2 marks] |
| (c) | Analyse two impacts of fuel shortages on airline profitability. | [6 marks] |
Answers
(a). Define the term contingency planning. [2 marks]
Contingency planning is the process of preparing alternative strategies or actions in advance to respond to unexpected events or problems. It helps businesses reduce disruption and continue operating during crises or emergencies.
Award [1] for a definition that shows limited knowledge of contingency planning.
Award [2] for a definition that shows clear and accurate knowledge of contingency planning, similar to the example above.
(b). State two external stakeholders affected by fuel shortages. [2 marks]
Possible answers include:
- Customers/passengers
- Governments
- Fuel suppliers
- Airport authorities/operators
- Shareholders of airlines
- Travel agencies/tour operators
- Creditors/banks
- Aircraft manufacturers
- Environmental groups
- Insurance companies
Mark as a 1 + 1.
(c). Analyse two impacts of fuel shortages on airline profitability. [6 marks]
Posssible answers include an analysis of any two of the following:
- Fuel shortages can increase operating costs, reducing airline profitability. In the case study, jet fuel prices doubled in recent weeks, causing airlines such as SAS to cancel flights and US airlines like Delta Air Lines and American Airlines to face billions in additional expenses, lowering profit margins.
- Fuel shortages may force airlines to reduce flights, leading to lower revenue and profitability. The case study states that airlines such as Air France-KLM and easyJet warned that shortages could result in flight reductions, especially in fuel-dependent regions like Southeast Asia, decreasing ticket sales income.
- Fuel shortages could increase ticket prices, which may improve profitability for some airlines if demand remains strong. Airlines facing higher fuel costs may pass these costs onto customers through higher fares, and airlines like Ryanair that remain confident about short-term fuel supply may benefit from maintaining operations while competitors reduce services.
Mark as a 3 + 3
Award [1] for identifying a relevant impact, [1] for explaining this, and [1] for appropriate application in the context of fuel shortages on airline profitability, up to the overall maximum of [6].
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All our collaborations with FT Schools include student-friendly versions of the FT articles (case studies), exam practice questions, and full mark schemes for teachers.
Paul Hoang
FT Schools teacher advisor for IB Business Management
