Speaking at a media briefing last week, Fernandes said AirAsia was adept at managing cash and expected to raise more than USD 1 billion, mostly to refinance existing debt, by December or January.

“COVID was far, far worse than what we are dealing with now. We couldn’t fly then, but we can fly now, and our demand is robust,” he said.

AirAsia, like its industry peers, has suffered from a spike in jet fuel prices stemming from the Iran war.

The same phenomenon has contributed to the collapse of debt-laden US carrier Spirit Airlines in May and a Chapter 11 bankruptcy filing by Latvia’s airBaltic this month.

AirAsia’s current liabilities stood at 18.4 billion ringgit (USD 4.52 billion) as of June 30, against cash and bank balances of 954 million ringgit.

As per Fernandes, the second quarter marked the toughest period for the airline that controls about 60% of Malaysia’s domestic market.

The low-cost carrier’s CEO also forecast improving conditions as AirAsia adjusts fares to reflect higher fuel costs.

AirAsia’s fuel costs have surged 66% in the second quarter from the prior quarter to an average of USD 183 a barrel, and it has no hedging in place.

Since September 16, AirAsia’s shares have fallen about 24%, hitting the lowest level since December 2022. The stock has lost more than 70% of its value so far in 2026.

As per Reuters, Malaysia’s finance ministry has hired Alton Aviation Consultancy to assess AirAsia’s funding needs as it ‌weighs what ⁠support, if any, it could extend to the airline given its importance to the local economy.

“We’ve never received any government support in the past 25 years. And as of today, we haven’t got any, and that’s it,” Fernandes said, refuting the media reports.

He said there had been no discussions with the government, and “we do not need rescue, bailouts, or whatever.”

For Fernandes, no one can replace AirAsia’s 100 planes in the country overnight.

“You have to have our cost structure, our brand, our market, and our network,” the CEO noted.

AirAsia will be advancing discussions with financial institutions, ⁠targeting up to USD 1 billion from international debt markets plus 700 million ringgit in local credit facilities, primarily to restructure its debt.

“The refinancing is…not raising fresh capital. It’s about bringing down costs,” Fernandes added.

AirAsia also is in talks with a major global bank on a bond transaction.

Furthermore, the loss-making low-cost carrier has received an offer from a Middle Eastern investor for USD 1 billion in funding ⁠with a term sheet signed pending due diligence.

The group’s load factor, which measures an airline’s ability to fill available seats, stood at 80% in Q3, and Fernandes predicted strong bookings for the fourth quarter, with operations in Indonesia, the Philippines, and Thailand emerging as positive developments.

The carrier has been restructuring aggressively, cutting underperforming routes, returning 25 older aircraft to lessors, and renegotiating contracts with vendors to reduce costs.

Last but not least, AirAsia is also accelerating its A321LR and XLR strategy to phase out fuel-inefficient A330s, and Fernandes said the airline expects “a pretty exciting announcement” with Airbus within the next month regarding its growth and strategy.

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However, Lufthansa’s profit outlook followed the same pattern of its global peers, with these being the common factors mentioned across the aviation industry’s earning documents: ​Iran war, higher jet fuel prices and capacity revisions.

While the budget carriers have felt the worst of the crisis, fuel-related costs have managed to pressurise the airlines’ hedging programmes too.

One after another, disappointing numbers arrive

Let’s start with Lufthansa, whose latest forecast 2026 adjusted earnings before interest and tax (Adjusted EBIT) stands at 1.7 billion euro-2.2 billion euro (USD 2.0 billion to USD 2.5 billion). It had previously expected adjusted EBIT ​well above the 2025’s 1.96 billion euro. After peaking in June 2026, the carrier’s stock has gone down about 2%.

Lufthansa’s capacity fell about 3% in the Q2, partly due to the staff strikes in April. However, its ​full-year capacity plans remain unchanged and are expected to be broadly flat. Adjusted EBIT fell to 383 million euro in the ​second quarter from 870 million euro ⁠a year earlier, well below analysts’ average forecast of 401 million euro.

The company now expects 2026 fuel costs of 8.66 billion euro, compared with an earlier forecast of 8.9 billion euro.

As per the Chief Financial Officer (CFO) Till Streichert, the second half of the year remained uncertain as customers were booking closer to departure dates. Still, Lufthansa has decided to maintain its longer-term ‌targets, including ⁠an operating margin of 8% to 10% between 2028 and 2030, despite geopolitical disruptions.

The company added that 86% of its fuel needs for this year are hedged, while Spohr told reporters ​fuel supplies are expected to remain stable.

For Air France-KLM, things were a bit different in Q2, as it beat profit expectations on revenue gains from premium and long-haul travel. However, Iran war was the spoilsport here, as the carrier trimmed its annual ‌capacity guidance.

The airline group, in the coming days, will be leveraging its premium offering and ticket price increases to sustain profits through an industry downturn. However, Dutch arm KLM said improvements were not good enough to strengthen its financial foundations.

ALSO READ | AirBaltic files for Chapter 11 bankruptcy as Iran war drives up fuel costs

The Franco-Dutch group posted second-quarter adjusted operating profit ⁠of 484 million euro (USD 552.5 million), down from 736 million euro in the same period in 2025 but higher than the 327 million euro consensus from analysts ​polled by the company.

Air France-KLM has lowered full-year capacity expectations, ‌now guiding ⁠for a 1% drop in short and medium-haul flights and a group increase of between 2% and 3%. That is a second cut from the 3% to 5% forecast made before things got heated up in the Middle East. ​The capacity cuts will mainly materialise ⁠in the Q4 and will include fewer daily flights through European cities such as Dusseldorf and London.

The company also trimmed its April fuel bill projection for ​2026 by 4% to USD 8.9 billion, citing newer and more efficient aircraft as well as jet ​fuel hedging.

With 6.8 billion euro ⁠in net cash and 3.5 billion euro in undrawn credit lines (at the end of June), the airline group may look to go for cheap consolidation opportunities.

Budget carriers face cost pressure

The environment is forcing smaller and budget carriers to seek restructuring or buyouts. Portugal’s TAP, one such carrier, has emerged Air France-KLM’s acquisition target, with Lufthansa being the other interested party.

TAP has slots linking its Lisbon hub with Brazil, Portuguese-speaking African countries and the ​United States, markets that can potentially become lucrative expansion opportunities for the winner.

British Airways owner IAG, while publishing its Q2 results in July, trimmed its 2026 capacity outlook ‌to flat, after reporting a 16% profit drop due to soaring fuel costs and weaker travel demand.

IAG, which also owns Iberia and ​Aer Lingus, said its fuel costs for the year would be between 8.3 billion euro and 8.6 billion euro (USD 9.6-USD 9.9 billion), slightly lower than the roughly 9 billion euro forecast ‌in May.

The company said it was about 57% booked for the second ​half of the year, with booked revenue in line with a year earlier. It continues ​to expect to ⁠offset about 60% of its higher fuel bill through higher ticket prices and cost-cutting measures.

ALSO READ | Iran war: Chinese airlines sink deeper into losses as jet fuel prices bite

EasyJet, before its acquisition by Apollo Global, saw the Iran war and the resultant price pressure on jet fuel contributing heavily in its 70% ‌profit downfall.

Ryanair, a prominent name in the European budget flying segment, witnessed its profit slumping ​by a third in its most recent quarter on higher fuel costs and lower fares that look set ‌to remain weak through the key summer period amid renewed consumer nervousness due to the Iran war.

The Irish airline reported after-tax profit of 538 million euro (USD 616 million) for its fiscal first quarter through June 30, ​down 34% from the previous year and short of a forecast of 579 million euro in a ​company poll of ⁠analysts.

However, the budget carrier maintained about being “better positioned” than most rivals because 80% of its fuel requirements to the end ⁠of March ​2027 are hedged at USD 67 per barrel. The management also stepped in to ​hedge 15% of its fuel needs for the following year at USD 85 per barrel during the recent interim ceasefire.

Wizz Air, another budget airline, saw its operating losses further deepening in the first quarter. It now expects revenue per seat to keep falling in the current quarter after it cut fares to attract passengers. Despite the headwinds, it has decided to keep on expanding its operational capacities, by inducting new Airbus aircraft in its fleet.

The budget carrier has hedged 76% of its full-year jet fuel needs using zero-cost collars, instruments that would cap the business’ ⁠exposure at USD 826 ​per metric ton. However, the same mechanism, prices fall below ​a floor of USD 759, may end up becoming counter-productive, as it will prevent the carrier from benefiting from the windfall.

Same story everywhere

In the United States, domestic airfares have been 26.5% higher than a year ago, according to June’s consumer price index data. Analysts, after decoding the data, found prices going up, both in domestic and global front, by 25%-30% compared with 2025.

Strong demand for travel and reduced global oil refining capacity have resulted in upward trajectory of jet fuel prices. The commodity was trading about USD 149 a barrel as of August 4, up from USD 90 at the start of 2026 – a 65% increase. Crude-oil prices are up about 30% since January, trading around USD 76 a barrel.

“Jet fuel costs rise slightly higher than oil prices because on average, only about 10% of refined oil can be turned into jet fuel. The more limited the product, the more vulnerable it is to these supply shocks,” said Louise Burke, the global head of aviation at Argus Media, a commodities data provider, while interacting with the Guardian.

“There have been a substantial amount of refinery closures, a key to why jet fuel prices have soared so much higher than standard crude oil. A new refinery in west Africa has helped bring on supply, and refiners are making tweaks to boost output to about 12%-14% to take advantage of the higher jet fuel prices, which has helped to alleviate some of the shortages,” she noted further.

ALSO READ | Iran war: Higher fuel costs weigh on UK carriers’ earnings outlook

As per John Grant, the chief analyst at OAG, jet fuel prices are the biggest operating cost for airlines and the hardest to control. Costs range between 30% and 35%. In a set-up like this, airlines get a little elbow room. Some may hedge their fuel costs to limit losses, but others buy on the volatile spot market.

Demand for flying in the world’s largest economy has also persisted despite higher airfares, giving airlines more leeway to continue charging higher prices.

Legacy carriers such as American Airlines, United Airlines and Delta Air Lines said in recent earnings calls that higher airfares helped to offset some of the higher fuel costs, but the volatility of prices makes it hard to forecast the effects.

In China, in separate filings to the Hong Kong and Shanghai stock exchanges on July 14, China Southern Airlines, Air China, and China Eastern Airlines reported anticipated interim losses that add up to between RMB 7.37–8.97 billion (USD 1.1–USD 1.3 billion).

And this is not about China, Europe or the United States. Everywhere it’s the same scenario. As per the International Air Transport Association’s (IATA) latest financial outlook for the global airline industry, overall sector profitability will get halved due to the geopolitics, with high fuel prices acting as the constant irritant.

Airlines are expected to achieve a combined total net profit of USD 23.0 billion in 2026, roughly half the previously projected USD 41 billion. The net profit margin is expected to be 2.0% in 2026, roughly half the previously projected 3.9%. It is also less than half the 4.2% estimate for the 2025 net profit margin.

Total industry revenues are expected to reach USD 1.165 trillion in 2026, up by paltry 9.4% on the USD 1.065 trillion in 2025.

Only silver lining will be the passenger load factor, that is forecast to continue to set record highs with airlines expected to fill 84.0% of all seats over the year. This will be an improvement on 2025’s ratio of 83.5%.

What’s happening at the fuel price front?

In the United States, the price for a gallon of Jet-A fuel rose 70 cents in August 2026 when compared to July figures to settle at an average price of USD 8.31 per gallon. Fixed-Base Operators (FBOs) conducted by the Aviation Research Group found out Jet-A fuel prices going up the USD 1.70 per gallon mark during the month, compared to the similar period in 2025.

Europe has been able to offset lower Middle Eastern jet fuel shipments by importing cargoes from the United States and Nigeria. The continent brought around 750,000 barrels per day (bpd) of jet fuel in June, the highest level since October 2025, and maintained a similar pace in July.

On August 10, imported jet cargoes were assessed at a discount of USD 24 per metric ton to gasoil futures, the widest discount since July 2025, according to LSEG and Argus Media.

At the height of the Iran war in March, jet fuel had traded at a premium of more than USD 500 per barrel over the benchmark.

However, the current situation is much better than the one seen a couple of months ago, when the International Energy Agency (IEA) warned about the continent having “maybe six weeks of jet fuel left.”

The reality is that the Gulf exports constitute the largest source of jet fuel to the global market. Refineries in other major exporting countries, such as Korea, India and China are themselves highly dependent on crude oil imports from the conflict-ridden region.

Europe has, over the years, relied on the Middle East for about 75% of its jet fuel imports. As per the IEA’s estimates, despite United States and Nigeria acting as the guardian angels currently, they would be only be able to replace a little over half of the lost supplies.

Houston-based Chris Russo, associate director for energy in North America at Publicis Sapient, sees the crisis leaving a long-term imprint on the airlines’ profit books.

Russo, while speaking at the Aviation Week Window Seat podcast, stated that even if Iran war ended tomorrow and the Strait of Hormuz fully reopened, jet fuel prices to remain high for months to come.

In fact, if the crisis gets worse again, some low-cost carriers may not survive a prolonged period of higher costs.

As per him, China and the United States have relied on their strategic oil reserves since the beginning of the Iran war. However, the world has been facing a nearly one-billion-barrel supply shortage.

“This hasn’t been factored into the prices of crude, so that will come back to bite because it will jack up prices again in the future and cause problems downstream for things like jet fuel. This is going to be a challenge for airlines for a long while,” Russo said.

For him, airlines, from now onwards, should take a long-term view about how to procure fuel and manage the processes like commodity’s smart management. Beyond reactive steps, like cutting routes or frequencies, or even fuel hedging, carriers should closely examine the contracts they have with suppliers to guarantee some amount of fuel over the next 12 or 24 months.

Russo said working those options could save an airline one to four cents per barrel, a meaningful saving when so many barrels are being bought.

Fuel Hedging: Where things stand now

In April, Ryanair CEO Michael O’Leary warned that the European aviation sector, as a whole, will face “financial difficulties” if jet fuel prices stay high.

Then, the following month, discount American carrier Spirit Airlines decided to cease its operations, after repeated attempts to secure creditor support for a government bailout plan met with failure.

Spirit once accounted for 5% of US flights. The news broke out on May 2. A day before that, the carrier’s board blamed the increase in oil prices and “other pressures” on the business responsible for the carrier’s deteriorating financial outlook, that ultimately led to its bankruptcy.

Talking about the Iran war and its impact on Spirit, the carrier’s restructuring plan assumed jet fuel costs of about USD 2.24 a gallon in 2026 and USD 2.14 in 2027.

However, geopolitics shot prices up to around USD 4.51 a gallon by the end of April, making fresh financing a must for the survival of the business, which it couldn’t manage.

However, things have changed since then. S&P Global’s July data, while talking about the industry’s fuel hedging trends, “European airlines’ fuel hedging programs have absorbed the bulk of this year’s conflict-driven jet fuel price shock, industry data showed, widening a structural cost divide with largely unhedged US carriers as coverage ratios begin to thin into 2027.”

Air France-KLM has lifted hedge cover to 87% of consumption on a horizon extending two years forward, while Lufthansa entered the crisis roughly 82% hedged for the Q1 2026 and 77% for the full year.

IAG’s coverage stood at 75% in the first quarter, declining to 50% in the Q4 2025, while Air France-KLM’s quarterly profile ranged from 70% in the first quarter to 47% in the fourth quarter.

Among low-cost carriers, EasyJet was 84% hedged for the H1 2026, 62% for the H2 and 43% for H1 2027, while Ryanair has locked in roughly 80% of next year’s fuel requirement. Wizz Air has described itself as mostly hedged through 2026.

IATA sees the North American airlines largely moving away from fuel hedging, jet fuel cost increases are transmitted more directly and rapidly into the region’s airlines’ cost bases.

Should prices remain elevated as legacy contracts roll off, carriers will face a choice between re-hedging at structurally higher forward levels, absorbing the cost into margins, or passing it through to fares.

Pain everywhere

In July, Iran war found its mention in the International Monetary Fund’s (IMF) outlook, with the global monetary body cutting its 2026 global growth forecast for the second time this year. Since then, the headwind called the energy shock has been accompanied by heatwaves (in Europe) and the record high food prices.

Consumers are already facing a cost-of-living heat. Central banks are showing reluctance to cut their interest rates. And if the April’s report from the consultancy Teneo is to be believed, the Iran war has ended up triggering a surge in air fares, with the lowest-priced economy tickets costing 24% more on average than they did a year ago.

The war, in its sixth month, saw a ceasefire being signed and broken by the Washington and Tehran. Post-June, Qatar, Oman, Kuwait, Jordan and Bahrain have all faced missile and drone attacks, resulting in the flight cancellations.

Several international airlines have pushed their route cancellations to the Middle East after the European Union Aviation Safety Agency (EASA) extended its conflict zone advisory for the Gulf, urging airlines to avoid the contested airspace until August 31.

So even if the jet fuel flow gets normal, a lack of permanent ceasefire will ensure that even if the carriers resume their Gulf services, avoiding the contested airspace will end up resulting in taking alternative yet longer routes, leading to more fuel consumption. The cycle of hedging and re-hedging will continue.

Higher ticket prices will remain as airlines will be looking to recover fuel costs. For budget carriers, whose popularity hinges solely on low-cost flying, will find it difficult to pass on the costs.

After the pandemic lull, airlines entered the post-pandemic period focusing on expansion. The Iran war has forced them to focus once again on survival, cost control and balance-sheet protection, whether the industry likes it or not.

The post Soaring jet fuel costs, squeezing profits: Airlines’ ‘Iran’ headache appeared first on International Finance.

Through the latest move, the airline now seeks to restructure its debt pile and survive a deepening sector-wide crisis brought on by the Iran war.

AirBaltic has secured a commitment for 350 million euro (USD 405 million) in financing from lenders including Strategic Value Partners, Barclays, Hayfin Capital Management, Morgan Stanley and Oaktree Capital Management to support its operations during the restructuring.

AirBaltic CEO Erno Hilden announced at a press conference that the court must approve the funding, which carries a rate of approximately 12%.

“In the coming months, we will engage with all our stakeholders to agree on sustainable terms,” he said, adding that the company is looking at a 44 million euro profit improvement annually.

AirBaltic said flights would operate as scheduled during the court-supervised process which the flag carrier expects to finish by June 2027.

A volatile Middle East has caused jet fuel prices ⁠to shoot up significantly since March this year, sparking the air travel sector’s worst crisis since the COVID-19 pandemic.

While investors and executives have been warning that carriers with stretched balance sheets risk collapse, American low-cost carrier Spirit Airlines became the first one to shut down its operations in May 2026.

AirAsia, South-east Asia’s largest budget carrier, on the other hand, is seeking fresh capital.

“AirBaltic has been experiencing acute financial stress due to a combination of financial and geopolitical factors,” the airline’s board wrote in a filing with the bankruptcy court.

The Latvian carrier has approximately USD 583 million in funded debt and finance lease liabilities, and it owes 106 million euro in payroll taxes and airline taxes and fees. Its 2025 revenue was approximately 779 million euro.

The Latvian government holds the majority ownership of AirBaltic, which operates a fleet of approximately 50 Airbus A220-300 planes, while Germany’s Lufthansa owns a 10% minority stake.

In the lead-up to the bankruptcy filing, AirBaltic’s bondholders were due to vote on the company’s plan to raise up to 257 million euros through new super-senior debt due in February 2027, at a rate of 25%.

Latvian Prime Minister Andris Kulbergs said the Chapter 11 proceedings were initiated after bondholders with over 70% of the value of the debt decided to opt for liquidation instead.

“I view this solution as one of the best options ‌for ensuring ⁠airBaltic’s viability, as it provides the necessary tools and time to implement the restructuring plan,” Kulbergs said.

“The government is continuing to look for a strategic investor as airBaltic reduces its fleet and reorganises its obligations,” he added.

Hilden, who led Scandinavian airline ⁠SAS through its Chapter 11 proceedings from 2022 to 2024, said AirBaltic is “targeting the same process.”

The airline had aimed to grow its fleet to 100 planes and was expecting to develop transit traffic from Russia, Belarus and Ukraine through Riga.

However, the ongoing Russia-Ukraine war has also hindered the roadmap.

As per Prime Minister Kulbergs, by April 2026, AirBaltic had “burned through” 380 million euro raised via bonds issued in 2024.

Another 30 million euros in emergency government loans ran out in June. As a response, the airline was looking to lease out its excess aircraft.

“Serving Baltic and Latvian routes requires only 30 aircraft, not 100,” Kulbergs concluded.

The post AirBaltic files for Chapter 11 bankruptcy as Iran war drives up fuel costs appeared first on International Finance.

As per the IATA, the industry-wide revenue passenger kilometres (RPK), a key measure of passenger demand, will grow by 2.1% year-on-year in 2026. The forecast marks a notable moderation compared to the stronger growth recorded in recent years.

According to the association, geopolitical hostilities involving the United States, Iran and Israel have triggered an energy shock that is expected to push up oil and aviation fuel prices, increasing operating costs for airlines and affecting consumer spending worldwide.

“The sharp increase in oil prices and the even greater surge in fuel costs weigh on both our industry and the macroeconomic environment,” IATA stated further.

As per the global aviation body, while global economic growth could slow by around half a percentage point to 2.5% in 2026, inflation may rise to 5%, reducing household purchasing power and affecting travel demand.

Among the regions, the conflict-ridden Middle East is expected to witness the sharpest travel demand decline, with passenger traffic projected to contract by 11.4% in 2026. IATA attributed the downturn to factors like airspace restrictions, operational challenges and a significant loss of transfer traffic resulting from the Iran war.

“The impact is unsurprisingly the most severe in this region, which faces airspace limitations and other operational constraints, resulting in a significant loss of transfer traffic,” IATA noted.

Africa, on the other hand, is emerging as a new growth arena, with IATA’s forecast predicting the strongest passenger traffic growth at 10% in 2026. However, as per the association, the increase will come from a relatively low base compared to the other regions.

The Asia-Pacific region is expected to remain the largest contributor to global passenger growth, with traffic projected to rise by 5.1% and account for more than half of the overall increase in global demand.

“Europe’s passenger traffic is forecast to grow by 2.8%, supported partly by rerouted traffic from disrupted Middle Eastern long-haul routes,” IATA said, while noting a growing preference among European travellers for leisure travel and visits to the closed ones within closer destinations.

“Passenger traffic in Latin America is projected to increase by 5%, aided by relatively resilient regional economies. Meanwhile, growth in North America is expected to remain subdued at 0.8%, reflecting the maturity of the market and a slowing US economy, particularly in the domestic travel segment,” IATA stated further.

Despite the slowdown, IATA said the global aviation industry remains resilient, as it concluded, “Overall, we expect the 2026 passenger outlook to slow meaningfully but nevertheless remain positive. While growth is weaker and more uneven across regions, the industry continues to expand, highlighting its remarkable adaptability in the face of sudden and severe external shocks and passengers’ need to travel.”

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As per the American Petroleum Institute’s estimates, about 40% to 60% of the crude oil that refineries in China, South Korea, and India imported and processed into jet fuel, and then exported to other markets, until the beginning of the Iran war, got transited through the Strait of Hormuz.

Since the beginning of the conflict in February, and blockade of the Strait of Hormuz by the United States and Iran, the bigger blowout was far more significant: Asian refiners losing a good chunk of the Gulf oil, resulting in production and export cuts of all sorts of fuel, including the one that powers commercial aviation.

According to the American Petroleum Institute, “Refineries process crude oil into a range of products — the big three are gasoline, which most of us put into our cars, motorcycles and small boats; diesel, which powers trucking, trains, ships and more; and jet fuel, which fuels jet aircraft and helicopters. But only about 11% of each barrel becomes jet fuel, and it’s generally difficult to increase that share. In the US, refineries have only been able to increase jet fuel production by roughly 2%-4%.”

Rumbling in the Aviation Sector
As of the middle week of May 2026, the surge in jet fuel prices from USD 85-90 to USD 150-200 per barrel has blindsided the aviation industry, with fuel alone accounting for up to a quarter of operating expenses, forcing airlines to raise fares, take a hit on their Q1 results, and revise their financial outlooks for the remainder of the year.

Some industry players are even mulling like letting go of their ‘non-technical’ roles. Cost cut, passing of fuel surcharge (variable fee applied by airlines to passenger tickets to offset volatile aviation turbine fuel ATF costs) to passengers, increasing baggage fees, and trimming benefits for economy passengers have emerged as part of the crisis-fighting mechanism for the industry.

According to the Washington-based research foundation Eno Center for Transportation: “Continued conflict and a re-closing of the Strait of Hormuz over the next three weeks will create shortages in jet fuel supplies for the start of the summer travel season.”

Impact of the shortened supply, including fare hikes and capacity reductions, are already being seen by travellers on South Asian airlines (which are most reliant on supplies from the Gulf region) and European airlines, who are calling on the European Commission for emergency action to address a potential shortage.

US airlines have begun to pass cost hikes onto consumers through increased checked bag fees and fare increases. A prolonged conflict will place airlines, particularly smaller carriers, in a more vulnerable financial position due to both a continued supply shortage, and a potential reduction in consumer demand.

As the Strait of Hormuz got blocked from March 2026 onwards, jet fuel prices increased 103%, with US jet fuel prices registering a hike from USD 2.50 a gallon to USD 4.88 a gallon from late February to early April.

“In early April, US jet fuel prices were around USD 205 per barrel. Jet fuel typically accounts for 25% to 30% of airline operating costs. For airlines, it is the second-largest expense after labour, and the most volatile component of their operations. Oil futures indicate that the market is anticipating a reduction in oil prices in May and June, but it is still unknown if a quick resolution will occur. While futures for May and June are lower than current prices, they are still elevated above the pre-war scenario, emphasising the already built-in impact from the first month of the conflict,” according to the Eno Center for Transportation.

As per industry executives, even if the Strait is reopened now, cost impact on jet fuel will persist due to reduced refining capacity in the Middle East. United Airlines anticipates prices to remain above USD 100 per barrel through the end of 2027.

However, the impact of the cost increase is not equal across geographies due to variation in dependency on jet fuel imports from the Middle East.

Asia-Pacific-based airlines were the worst-hit. While Korean Air has gone into ‘emergency management’ mode, Philippine Airlines has fuel till June-end. Most Asian airlines reduced schedules for April and May, apart from adding jet fuel surcharge to fares.

In Europe, there are concerns about a systemic jet fuel shortage in May and June for European airlines if the Hormuz stalemate continues. Industry group Airlines for Europe (A4E), an industry group representing European airlines, sent a letter to the European Union in April calling for emergency measures to respond to jet fuel shortages. The letter called for joint purchasing of kerosene, and a requirement for countries to maintain emergency jet fuel.

In 2022, in the initial days of the Russia-Ukraine war, the EU started joint purchasing of natural gas. European airlines are now calling for a return of the move.

Since 2022, European airlines have experienced jet fuel prices above the global average due to the Ukraine war (impact on access to Russian petroleum products), and due to the Israel-Gaza conflict (reduced capacity in the Red Sea for shipments from the Middle East and Southeast Asia).

Airports in Paris, Amsterdam, and Copenhagen have already started using their jet fuel reserves, and Italy has raised concerns about fuel shortage, and rationing at select airports.

The situation is a bit different in the United States. Airlines do not have a problem of supply. They have been affected by an increase in cost. Alaska Air, American Airlines, Delta Air Lines, and JetBlue Airways have announced increases to checked bag costs.

“Before the war, domestic airline prices increased 6% in January, and 7.1% in February. In the first week of the war (from February 28th to March 9th), US airline prices increased 24% in comparison to the same week in 2025. In comparison to European airlines, major US carriers do not hedge, a practice in which airlines purchase fuel supplies months in advance at a futures price. This may create more exposure for US airlines if the crisis continues,” according to the Eno Center for Transportation.

Stress upon budget carriers
The impact of fuel cost increases has varied impact on the business model and financial strength of various airlines. While legacy airlines, such as United, have the freedom to pass costs on to consumers with less concern about loss in consumer demand, the phenomenon has left low-cost airlines in deep soup.

Their operating costs are increasing, consumers are getting sensitive to price increases, and these airlines don’t have enough financial security to weather cost increases.

In April, JetBlue Airways became the first American airline to implement a price hike on checked baggage to offset blows from rising fuel cost. Delta Airlines CEO Ed Bastian said an increase in oil prices of just 1% per gallon would lead to more than USD 40 million in annual losses for the airline.

Michael O’Leary, CEO of Dublin-based budget carrier Ryanair (the largest airline in Europe by total passengers carried), which is known for its business model of offering rock-bottom prices on short flights between nearby European cities and then adding extra fees for things like baggage and seat selection, told The Guardian: “Nobody is willing to give us any assurances into June or July. But if there’s a risk to 10% or 20% of the fuel supply in June, July, or August, then we and all other airlines would have to start looking at cancelling some flights, or taking some capacity out.”

Despite the airline hedging (locking in prices using futures contracts) 80% of its fuel costs until March 2027 at USD 67 a barrel, O’Leary accepted the prolonged war bringing major market uncertainty and a situation in which Ryanair is ‘never in control of pricing’.

Then we have the example of Spirit Airlines. The discount carrier, on May 2, ceased operations after repeated attempts to secure creditor support for a government bailout plan met with failure.

The bigger picture here was not the USD 500 million financing package that would have kept the carrier afloat, but got stuck at the White House level. The hike in fuel prices on account of the Iran war put more pressure on the troubled carrier’s restructuring plan. By April-end, fresh financing was a must for survival of the business. And, the low-cost carrier failed in that task.

The post IF Insights: Airlines face grounding risk as Iran war pushes jet fuel price higher appeared first on International Finance.

Spirit once accounted for 5% of US flights. The carrier, while competing against larger industry players, also helped keep fares lower.

According to a Reuters report, Spirit convened a board meeting on May 1. The meeting ended without an agreement to rescue the company. Participating members blamed the increase in oil prices and “other pressures” on the business responsible for the carrier’s deteriorating financial outlook.

Spirit had 4,119 domestic flights scheduled between May 1 and May 15, according to data from aviation analytics firm Cirium. As of now, all these flights are cancelled.

Spirit built its brand around affordable fares for budget-conscious travellers, while shunning add-ons like checked bags and seat assignments. That business model, however, came under pressure post-COVID, as passengers preferred to opt for comfort and experience-based travel. The increase in jet fuel price due to the Iran war, dubbed as the aviation sector’s worst crisis since the pandemic, further killed the budget carrier’s turnaround hopes.

While Spirit’s shutdown will benefit rivals such as JetBlue Airways and Frontier Airlines, the latter have stepped up to fill the void. JetBlue has already announced expanding its service from Fort Lauderdale, one of Spirit’s key hubs, while adding 11 new cities and more flights on existing routes. Frontier has rolled out systemwide discounts and will be adding summer routes.

While the Trump administration tried to steer clear of the situation by stating that it gave Spirit and its creditors a final rescue proposal after talks deadlocked over a USD 500 million financing package that would have kept the carrier afloat, the crisis will add further fuel to the Republicans’ falling domestic popularity, as the Iran misadventure already hurts Uncle Sam’s economic prospects.

Talking about the Iran war and its impact on Spirit, the troubled carrier’s restructuring plan assumed jet fuel costs of about USD 2.24 a gallon in 2026 and USD 2.14 in 2027. However, the regional conflict shot prices up to around USD 4.51 a gallon by the end of April, making fresh financing a must for the survival of the business.

In February 2026, the airline flew around 1.7 million American domestic passengers, with a 3.9% market share, down from 2025’s tally of 5.1%. According to the Wall Street Journal, there were also disagreements within the Republican circle over how the bailout should be executed. According to the Wall Street Journal, there were also disagreements within the Republican circle over how the bailout should be executed.

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Since the start of the Ukraine war in 2022, energy prices have increased amid the sanction game between Russia and the Western Bloc, thus causing a cost-of-living crisis in markets (especially Europe) that depend on oil imports from Russia. The aviation sector has felt the pinch as well.

Flight tickets have increased due to rising jet fuel costs. According to a CNBC analysis, airfares increased by up to 25% in the United States in 2022, amid soaring inflation. Another 2022 report from Bank of America stated a 60% price increase by airlines and travel companies, thus forcing consumers to pay more for their travel expenses.

Together with the global economic downturn, this increase in ticket prices could offset the aviation sector’s recovery hopes, according to new research from Airports Council International (ACI World).

According to the trade group, approximately 8.4 billion people will fly in 2023, accounting for 92% of all passenger traffic worldwide. This looks to be an improvement over 2022, when 6.5 billion passengers travelled (72% of 2019 levels).

Luis Felipe de Oliveira, director general of ACI World, said, “The increase in aviation travel that followed the removal of restrictions in 2022 is still present in 2023… But, we are aware that the recovery speed depends on several variables. The potential slowing of GDP growth in major economies, coupled with the increase in airfare due to higher jet fuel prices, weigh negatively on demand.”

In February, the International Monetary Fund (IMF) predicted that the global economy would grow by 2.9% in 2023 before increasing to 3.1% in 2024 from a projected 3.4% in 2022.

According to ACI, removing travel restrictions and quarantine requirements for immunised travellers in 2022 has already resulted in an “upsurge in demand” for air travel.

The percentage of respondents who want to travel by air in 2023 in ACI’s Global Traveller Survey, which included 4,125 respondents from 30 countries, was 86%, the highest figure since the start of COVID.

ACI also stated that a “strong labour market and the reopening of China” could help raise global passenger traffic. However, slower GDP growth across nations and rising prices could impact travel demand.

According to the report, domestic travel will be the primary driver of the sector’s recovery to 2019 levels by 2024.

Global passenger traffic is anticipated to reach 19.3 billion by 2041. In the same year, airports will see 153.8 million aircraft movements.

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