Ethiopian Airlines Group is seeking to shield itself from volatile fuel prices through a short-term supply arrangement with Saudi Arabia, as surging energy costs threaten profitability and complicate the financing of a roughly $30bn aircraft order backlog, Fortune (Ethiopia) reports.

The flag carrier is preparing a three-month fixed marginal price fuel contract aimed at providing price certainty rather than securing cheaper supplies. The move comes after fuel costs climbed from 40% to 56% of operating expenses within a year, according to the airline. Industry analysts estimate Ethiopian Airlines spends $2.2bn-$2.4bn annually on fuel and consumed around 3.2bn litres of jet fuel last year.

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

Tassew said the airline's challenges were structural and called for policies to support domestic fuel production. Ethiopian Airlines has explored producing sustainable aviation fuel (SAF) with Ethiopian Mineral Corporation, but the project has stalled because foreign partners have yet to secure financing. The Saudi agreement is therefore intended as a temporary hedge against market volatility.

Ethiopian Airlines has 117 aircraft on order, valued at around $30bn, but deliveries of larger wide-body aircraft could take up to eight years because of global supply chain constraints. Financing will be arranged through leases and loans, with final orders expected to be confirmed in December. Until then, airlines across Africa are increasingly relying on older aircraft and extensive maintenance programmes to sustain capacity.

"A fixed marginal price supplier contract is more practical because it can provide security of supply regardless of price swings," Aaron Munetsi, chief executive of the Airlines Association of Southern Africa, told Fortune. He argued that governments should play a larger role in ensuring fuel security and reducing costs. "Governments should take responsibility for reliable fuel access and protecting operations from shortages or price shocks," he said.

Munetsi said African airlines were being forced to keep aircraft in service for more than 25 years because delivery delays made replacement difficult. He advocated rigorous D-check maintenance programmes to maintain safety standards and called on regulators to relax age-based restrictions on aircraft. African airlines operate on margins of only about $0.40 per seat, leaving little room to absorb higher fuel costs, taxes and airport charges.

"The remedy lies in governments cutting taxes and fees while dismantling state-owned monopolies dominating airport services," Munetsi said. He also argued that greater specialisation among African maintenance facilities could reduce reliance on expensive overseas repair centres, suggesting Ethiopian Airlines' maintenance, repair and overhaul business could focus on landing gear while hubs in South Africa and Egypt specialise in engines and other components.

Speaking at the International Air Transport Association annual meeting in Rio de Janeiro last week, IATA director general Willie Walsh said passenger traffic in Africa was expected to grow by 10% this year despite the continent's high operating costs. He said implementing Africa's open-skies agreement remained critical and highlighted the continent's potential in synthetic aviation fuels.

"Wafer-thin" margins mean the industry remains vulnerable, Walsh warned. Global airline fuel costs are expected to increase by about $100bn to $350bn this year, contributing to a projected decline in net profits from $45bn in 2025 to $23bn in 2026. Despite the pressures, he said demand remained resilient and African airlines were still expected to remain profitable.