The global aviation industry now operates in an era of sustained higher costs, lower certainty and divergence between carriers that can absorb fuel and airspace disruption shocks, and those that cannot. These shocks will unevenly affect operations, passenger demand and margins across both short- and long-haul flights.

Since the onset of the conflict in the Middle East, jet fuel price and supply disruptions have acted as a distress catalyst, while passenger demand has so far held up. Jet fuel has spiked from around $80 per barrel before the conflict began to $150 per barrel by late April, with the weekly average reaching $179 per barrel in the week ending 24 April, according to International Air Transport Association (IATA). By early May, US spot prices were running at around $4.03 per gallon across major hubs, based on EIA data. 

Disrupted Middle Eastern flows have triggered a global chain reaction: Asian refiners face tighter access to crude and kerosene supplies, prompting Europe to secure replacement barrels from the US and Nigeria, competing against Singapore and Australia. Pre-conflict cargoes and stored products have so far softened the physical impact of disrupted Middle Eastern supply. But the FT reported that Goldman Sachs estimates European commercial jet fuel stocks could fall to the IEA’s critical 23-day threshold by the end of May. Once inventories approach that level, airlines have fewer options: demand destruction, higher fares or deeper flight cuts. The result is higher import costs, longer supply chains and greater operational uncertainty. 

Middle Eastern carriers recorded a 60.8% year-on-year fall in international traffic, driven by a 56.9% collapse in capacity as the conflict closed much of the region’s airspace, IATA data shows. Europe-Asia traffic surged 29.3% over the same period, as direct services replaced some journeys that would previously have connected through Middle Eastern hubs, requiring longer routes that increase fuel burn and erode route margins. Overall, while Middle Eastern traffic fell, global demand still rose 2.1% in March, as air travel demand redistributes through a more expensive and constrained aviation system. 

So far, the balance sheet impact appears delayed. In its quarterly earnings, Air France-KLM explicitly stated higher fuel prices were “not yet visible” in Q1 because of fuel-pricing lags and hedging. Its results revealed both demand resilience and operational fragility – the disrupted Gulf corridor offers a near-term opportunity for European carriers, but one increasingly constrained by jet fuel scarcity. Sustained shortages risk the demand outlook if fares rise materially and do not unwind once supply chains stabilise.

Fuel hedges delay the financial impact of rising spot fuel prices, but they are time-limited, with hedging duration and coverage levels varying widely across the sector. Air France-KLM said it was almost 70% hedged for 2026, but still expects a €2.4bn net increase in its fuel bill, with €1.1bn falling in Q2. Passenger revenues are being supported by higher fares and stronger yields, allowing Air France-KLM to recover around 60% of the recent fuel-cost increase. But this still leaves a material margin squeeze that must be absorbed. Lufthansa results show a similar pattern. The group is nominally 80% hedged, but primarily in crude oil and gasoil rather than aviation fuel directly – a mismatch that has cost it an estimated €1bn from its hedging position alone. Higher kerosene prices still imply €1.7bn of additional costs in 2026, as reduced fuel availability later in the year remains a risk. Elsewhere, British Airways’ owner IAG expects a €2bn fuel-cost hit, plans higher increases on premium and long-haul fares, and aims to recover about 60% of the impact through savings and fare rises.

Ryanair CEO Michael O’Leary suggests European supply risk has eased somewhat, following replacement jet fuel flows from the US, Norway and Nigeria, although price risk remains severe. The low-cost carrier has hedged 80% of its fuel requirements at approximately $67 per barrel through to March 2027 – the strongest hedging position among major European carriers. O’Leary has signalled that he intends to use Ryanair’s advantage to push fares down to compete with less-hedged rivals, rather than to protect margins. If jet fuel remains above $150 a barrel through the summer, less-hedged peers face a heightened financial distress risk. From the Gulf hub side of the market, Emirates President Tim Clark points out that the aviation sector has weathered repeated global shocks and become “fairly adept” at restoring operations quickly, although prolonged fuel-price pressure could affect demand growth.

In a protracted jet fuel scarcity scenario, airlines are likely to protect higher-yield long-haul flying, such as transatlantic capacity linked to the US FIFA World Cup this summer. Autumn and winter schedules are more vulnerable, with short-haul and lower-yield routes becoming harder to justify as fuel remains scarce and expensive. Europe has already seen the beginning of jet fuel rationing. Four northern Italian airports have implemented restrictions, while the UK is identified as the most exposed major market followed by Denmark and Portugal. In late April, Lufthansa cut 20,000 short-haul flights from its summer schedule running through October 2026 – a move that will save approximately 40,000 metric tons of jet fuel. Separately, the jet fuel crisis may accelerate the retirement of older, less fuel-efficient aircraft.

The collapse of Spirit Airlines underscores the fragility of carriers with limited liquidity and thin margins amid fuel scarcity and cost volatility. While the fuel spike was the proximate catalyst, Spirit’s failure was the culmination of years of accumulated financial weakness – an overleveraged balance sheet, thin liquidity and a business model already under pressure from larger, better-capitalised competitors. In Europe, the most exposed carriers are those where insufficient hedging compounds already-stretched balance sheets, limited pricing power, and constrained cash reserves. The window for these carriers to restructure is narrow, while resilient carriers must stress-test against fuel costs remaining materially elevated well into 2027.

As higher fuel costs and scarcity push up airfares, higher prices often prove sticky. A scenario reported in the FT, based on Bernstein’s fuel-cost assumptions, suggested that carriers trying to preserve both schedules and profits under a severe fuel-cost shock could face fare increases of around 50%. While fuel surcharges will likely be removed as conditions normalise, higher base fares are less likely to fully reverse once passengers have accepted them. This is how a temporary supply shock creates lasting affordability problems, risking demand destruction across discretionary leisure routes.

Even a swift resolution to current geopolitical tensions would not immediately normalise jet fuel markets. Refinery infrastructure in the Gulf has sustained damage, inventories have been drawn down globally and supply chains rebuilt around alternative sources will not revert overnight. The sector will operate with higher baseline costs and reconfigured fuel trade flows long after the conflict resolves.

The longer-term risk is that air travel economics makes low-cost routes less viable. If higher fuel costs and route rationalisation persist, growth may skew further towards premium, long-haul and higher-yield passengers, while low-cost and discretionary short-haul travel absorbs more pressure. The aviation sector may emerge from the current crisis with a higher embedded risk premium – even if underlying demand proves resilient.