Airlines raise ticket prices due to expensive fuel. What is the risk for the investor

Airlines around the world have started raising ticket prices following a surge in the cost of jet fuel caused by the conflict in the Middle East and a spike in oil prices. If the high price of fuel continues, few players will be able to remain profitable while most will make a loss, analysts warned.

A number of airlines began to raise ticket prices due to a sharp increase in fuel costs. In particular, the Scandinavian SAS, Australian Qantas Airways, New Zealand Air New Zealand and Hong Kong Airlines reported about fare adjustments, Reuters reports.

The cost of jet fuel, which was around $85-90 a barrel before the U.S.-Israeli strikes on Iran, has risen to $150-200 a barrel in recent days, Air New Zealand says. The airline has also suspended its financial forecast for 2026 amid the uncertainty.

For its part, Hong Kong Airlines said it will raise fuel surcharges to 35.2 percent from Thursday, Reuters writes. The most noticeable increase will affect flights between Hong Kong and the Maldives, Bangladesh and Nepal.

Jet fuel prices are rising following the rise in oil prices amid the US-Israeli war with Iran, which has virtually closed the vital Strait of Hormuz - through which about 20% of the world's oil supply passes.

Spot prices for jet fuel in some markets have increased by about 60 cents per gallon since the end of February. In Los Angeles they rose to $4.19 per gallon, at the airport of New York - to $3.92 per gallon, writes Barron's with reference to the data of the analytical company Oil Price Information Service (OPIS).

Only three U.S. carriers - Delta Air Lines, United Airlines and Southwest Airlines - will be able to "make modest profits" if fuel prices hold at or above $4 a gallon. The rest of the airlines would make no money in such a situation, and some could be "deep in losses," said UBS analyst Atul Maheswari, quoted by Barron's.

Jet fuel prices have nearly doubled in the past month, and that could create tens of billions of dollars a year in additional costs for the industry, given Deutsche Bank's forecast of about 20 billion gallons of fuel consumed by U.S. airlines in 2026, bank analyst Michael Linenberg wrote, according to MarketWatch.

Linenberg estimates that raising ticket prices by $10 across the industry and maintaining that level for a year could increase airline revenue by about $7-8 billion, but still not enough to fully offset the jump in fuel costs.

If there is a positive factor, it is strong demand for air travel and signs of an accelerating U.S. economy, which could help the market accept higher fares, said Melius Research analyst Conor Cunningham, quoted by MarketWatch.

Cunningham added that the key question for the industry is whether consumers will start to cut back on spending or delay booking travel, especially international travel. So far, there are no signs of such a decline in demand, but the conflict over Iran could be a turning point for the market.

"We assume airlines will be able to offset some of the sharp rise in fuel prices, but it's hard to envision margin expansion this year unless there is a sharp drop in energy prices," Barron's quoted TD Cowen analyst Tom Fitzgerald as saying.

Shares of U.S. air carriers have been experiencing a serious drop in stocks since the beginning of the conflict with Iran: Delta securities fell in price by 9.8%, United Airlines fell by 14.2%, and American Airlines - by 15% (as of the closing of stock exchanges on March 10). One of the main victims, as Barron's notes, was the low-cost carrier Jetblue: its shares fell by 20.4%.

Low-cost carriers are likely to be hardest hit by shifting rising costs to consumers through fare increases, as it could undermine their business model, Barron's noted. In addition, JetBlue ran into operational problems on Tuesday and briefly suspended all flights.

This article was AI-translated and verified by a human editor