As the war triggered by the US-Israeli airstrike that killed Iranian Supreme Leader Ayatollah Ali Khamenei continues to escalate, the closure of the Strait of Hormuz threatens global supplies, with jet fuel prices immediately affected.
In many parts of the world, the price of a barrel of oil has increased by as much as 80%.
“Domestic capacity growth is accelerating this year and the Iran conflict will add disruptive pressures and rising material and fuel costs,” Rothschild Redburn director James Goodall wrote in an investor note that downgraded American Airlines stock in response to the situation in the Middle East.
Paulson School of Engineering and Applied Sciences at Harvard University, United Airlines CEO Scott Kirby warned that rising fuel costs ($3.95 per barrel as of March 6) will have a rapid impact on all airlines’ profits.
“If this continues, we will feel it in the second quarter [the second financial quarter of the year] Kirby said in response to a reporter’s question, adding that the direct impact on prices for consumers “could start very soon.”
RELATED: Airlines cancel more flights due to geopolitical instability
While many European and Middle Eastern airlines have begun hedging fuel prices against volatile oil prices that could last into 2027, U.S. airlines generally do not use futures contracts to lock in prices because it would result in significant losses if oil prices fall faster than expected.
“No one is hedging anymore, and even if you do, hedging the crack spread is really hard to do,” Kirby further said. The crack spread is the difference between crude oil and jet fuel and other products available for industrial use.
Many other analysts also warned about the impact of the conflict on air ticket prices. Hungarian low-cost airline Wizz Air said it expected losses of up to 50 million euros due to rising fuel prices. Delta also estimates that a rise in gas prices of just 1 cent per gallon would increase its fuel costs by $40 million per year.
More travel news:
Southwest and American are expected to take larger losses due to higher fuel costs due to the large number of older, less fuel-efficient aircraft and the types of routes they fly. Shares of all major public airlines, as well as airline ETFs, have continued to fall since the strike on February 28.
