Ethiopian Airlines Hedges Against Fuel Swings Through Saudi Contract

June 16, 2026

Mintesinot Nigussie

Ethiopian Airlines Group (EAG) is pursuing a fixed-price fuel supply agreement in Saudi Arabia as it seeks to reduce its exposure to volatile energy markets, with fuel costs now accounting for more than half of the carrier's operating expenses.

According to Addis Fortune, the proposed three-month contract is designed to provide cost certainty rather than secure cheaper fuel, offering temporary protection against price fluctuations at a time when aviation fuel has become one of the Airline's most significant financial pressures.

Fuel expenses have risen from 40 percent to 56 percent of Ethiopian Airlines' operating costs within a year, increasing pressure on the carrier as it advances an expansion programme that includes 117 aircraft on order worth about 30 billion dollars.

The Airline spends an estimated 2.2 billion dollars to 2.4 billion dollars annually on fuel, making energy costs one of the most important factors shaping its profitability and long-term growth plans.

Chief Executive Officer Mesfin Tassew described the challenge as extending beyond fuel markets, pointing to structural cost pressures facing African airlines.

"Operating costs in Africa remain high compared with Europe, where airlines benefit from wider competition in ground handling, maintenance and airport services," he told Addis Fortune. "In Africa, limited competition leaves carriers exposed to higher charges across the aviation supply chain."

The move comes as airlines worldwide grapple with rising fuel costs. Fuel now represents about 31.4 percent of the industry's total cost base, while carriers are increasing passenger fares and cargo rates to offset an expected 70 percent year-on-year increase in jet fuel prices. The rise is projected to add 100 billion dollars to the global airline industry's fuel bill.

Against that backdrop, Ethiopian Airlines has explored domestic alternatives to reduce its dependence on imported aviation fuel. One of the initiatives involved a partnership with the Ethiopian Mineral Corporation (EMC) to develop sustainable aviation fuel (SAF) production in Ethiopia.

The project, however, has yet to progress after prospective foreign partners were unable to secure the financing required for implementation.

Mesfin said policy support aimed at encouraging local fuel production would be critical to sustaining the Airline's long-term growth trajectory.

For now, the Saudi agreement represents a near-term risk-management tool. While it offers a hedge against short-term fuel price volatility, efforts to establish domestic sustainable aviation fuel production remain constrained by financing challenges.