Air New Zealand to cut flights as fuel price surge wreaks havoc on travel

Adds Sydney airport CEO comments, Cathay fuel surcharges; paragraphs 11-15

By Lucy Craymer

WELLINGTON, March 12 (Reuters) - Air New Zealand AIR.NZ said on Thursday it would slash 5% of its flights, or around 1,100 services, through early May as the Iran war sends jet fuel prices surging and disrupts travel even in rural areas thousands of miles from the conflict zone.

The New Zealand carrier led other airlines including Australia's Qantas Airways QAN.AX, Scandinavia's SAS and Thai Airways THAI.BK in announcing airfare hikes this week, blaming an abrupt spike in the cost of fuel that has rattled the global aviation sector.

The Middle Eastern conflict has forced many airlines to cancel flights to and from the region or use alternative routes due to drone and missile fire that has severely curtailed airspace and caused the biggest aviation industry crisis since the pandemic.

Oil prices climbed on Thursday after Iraqi security officials said Iranian explosive-laden boats had hit two fuel oil tankers amid other global supply disruptions and Iran said the world should be ready for oil at $200 a barrel.

Air New Zealand CEO Nikhil Ravishankar told state-owned Radio New Zealand that about 44,000 customers of the 1.9 million flying through early May would have to be reaccommodated due to domestic and international flight cuts.

Airports servicing areas such as popular New Zealand winemaking region Marlborough and west coast city New Plymouth will see a reduction in services over the coming weeks.

Fewer long-haul flights would be cut, Ravishankar said, as its U.S. routes have become a more popular stopover on the way to Europe since widespread Middle Eastern airspace closures.

"People want to get to Europe still, and over the U.S. airspace we can get them into Europe, and that's what we're focused on doing," he said.

Air New Zealand's shares were down 1% on Thursday, in line with drops in Hong Kong's Cathay Pacific 0293.HK, Australia's Qantas Airways QAN.AX and Japan Airlines 9201.T.

Sydney Airport Chief Executive Scott Charlton warned about jet fuel supplies on Thursday, raising fresh concerns about Australia's biggest aviation hub, consuming nearly 40% of fuel, with supply for 25 to 30 days held in pipelines and storage.

"We don't refine aviation fuel at scale anymore. We import it," Charlton told a biofuels conference.

That meant the reliability of that 25-day supply depended on international shipping lanes, global refining capacity and geopolitical stability, he added.

Hong Kong's Cathay Pacific 0293.HK became the latest to adjust fuel surcharges on Thursday.

The Asian financial hub's flagship carrier said all routes would be affected from March 18, as jet fuel prices have doubled since the start of March amid the Middle East conflict.

On Wednesday, two drones fell near Dubai's main airport - the world's busiest hub for global passengers - and Bahrain evacuated some planes, as attacks on infrastructure across the Gulf kept up their toll of air traffic.

The war has also disrupted shipping via the world's most vital oil export ​route, sent oil prices surging and upended global travel, pushing airline tickets on some routes sky-high, and sparking fears of a deep slump in travel.

Travellers are also scrambling to switch to carriers that avoid Middle East airspace, with Thai Airways saying it was already taking on board more passengers to and from Europe.

Cathay Pacific has cancelled flights to Dubai and Riyadh through the end of March, adding more services to London and Zurich instead, taking advantage of a spike in demand for Asia-Europe flights that avoid the Middle East.

Highlighting the ripple effects of the conflict beyond the Middle East, Vietnam warned on Wednesday its domestic airlines could face fuel shortages as soon as next month.

(Reporting by Lucy Cramer in Wellington, Chayut Setboonsarng in Bangkok and Julie Zhu in Hong Kong, Writing by Anne Marie Roantree; Editing by Jamie Freed and Clarence Fernandez)

((annemarie.roantree@thomsonreuters.com; +852 97387151; Reuters Messaging: annemarie.roantree.thomsonreuters.com@reuters.net))