International Airlines Group (IAG) warns that soaring jet fuel prices, driven by the Middle East conflict, will force airlines to raise fares. IAG expects to spend €2 billion more on fuel this year, bringing its total fuel costs to €9 billion. The disruption in the Strait of Hormuz has sent aviation fuel prices soaring, with the average global jet fuel price reaching $181 per barrel. Airlines across Europe are responding with fare increases, flight cancellations, and capacity reductions to mitigate the financial impact.
The chief executive of International Airlines Group (IAG), the parent company of British Airways, has issued a stark warning that rising jet fuel costs driven by the ongoing Middle East conflict will force airlines worldwide to increase fares.
IAG, which also owns Iberia, Aer Lingus, and Vueling, revealed that it now expects to spend approximately €2 billion more on fuel this year than originally planned, bringing its total fuel expenditure to €9 billion. This surge in costs is primarily attributed to the disruption in the Strait of Hormuz, a critical oil shipping route, which has been effectively closed due to the US-Israeli war against Iran.
The resulting energy shock has sent aviation fuel prices soaring, with the average global jet fuel price rising to $181 per barrel last week, according to the International Air Transport Association (IATA). This marks a 1% increase from the previous week, following a peak of $209 per barrel in early April, up from $99 at the end of February.
IAG CEO Luis Gallego stated that the company is taking necessary measures to manage the uncertainty, including adjusting yields, costs, and capacity. However, he acknowledged that all airlines will need to raise fares to offset the impact of higher fuel costs, which account for about a quarter of their total expenses. Despite these challenges, Gallego expressed confidence in IAG's business model and strategy, even as the company's shares fell by 4% in early trading following the announcement.
The situation is further complicated by concerns over potential jet fuel shortages as the peak summer travel season approaches. Iran's continued control over tanker traffic through the Strait of Hormuz has exacerbated these worries, prompting many airlines to cancel flights. According to aviation analytics firm Cirium, 13,005 flights planned for May were canceled between April 10 and April 21, representing a 1.5% reduction in scheduled flights. The impact of rising fuel costs is being felt across the European airline industry.
AEGEAN AIRLINES expects suspended Middle East flights and higher fuel prices to significantly affect its first-quarter results. AIR FRANCE-KLM anticipates a $2.4 billion increase in its fuel bill this year and has downgraded its capacity outlook, reducing its expected growth from 3% to 5% to 2% to 4% for 2025. The group has also announced plans to increase long-haul ticket prices by €50 per round trip.
EASYJET has warned of a larger half-year pre-tax loss, including an additional £25 million in fuel costs for March. LUFTHANSA has introduced a new 'Economy Basic' fare option for short- and medium-haul flights, limiting free carry-on bags to a laptop bag or small backpack. The group has also canceled 20,000 short-haul flights through October, saving approximately 40,000 metric tons of jet fuel.
SAS has canceled 1,000 flights in April due to high oil and jet fuel prices, following a similar move in March. TAP has implemented price hikes to partially offset the impact of fuel price changes on its revenue. TUI has cut its full-year underlying profit outlook and suspended revenue guidance, citing €40 million in extra costs related to the war in March.
SunExpress, a joint venture between Turkish Airlines and Lufthansa, will impose a temporary fuel surcharge of €10 per passenger on routes between Turkey and mainland Europe. Turkish Airlines has decided not to distribute any dividend from its 2025 net profit, opting to retain earnings to preserve cash. VIRGIN ATLANTIC is adding fuel surcharges to fares but remains uncertain about returning to profitability this year
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