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Geopolitical tensions increase fuel costs and lead to higher fares for passengers
Oil prices are rising again as tensions over Iran rattle global energy markets, and that's reflected in airline ticket prices. Airline ticket prices have always been difficult to predict. A cheap deal you see today could triple in a matter of days. A major factor is the cost of fuel.
In a typical year, jet fuel accounts for about a fifth to a third of an airline’s operating costs. When markets are stable, this percentage is typically 20–25%. But in crisis situations, such as wars or other shocks, price fluctuations can push this level beyond 30%. When oil prices rise sharply, airlines can no longer afford this cost on their own. They are forced to review prices, capacity, and strategies in near real time.
How do high oil prices translate into more expensive fares?
The current conflict has clearly shown how exposed the aviation industry is to geopolitical shocks. The region plays a key role in global oil supplies, and the mere threat of disruption, through sanctions, instability or the closure of the Strait of Hormuz, is enough to drive up prices.
Airlines don't buy crude oil directly, but the price of jet fuel is closely tied to it. When the price of crude oil rises, refined fuel often rises even faster, immediately squeezing profit margins.
Even without actual supply disruptions, the market reacts to risk, leaving airlines to deal with the financial consequences.
Initially, these changes are not immediately noticeable to passengers. Airlines rarely raise prices immediately, especially if they believe the increase is temporary. But if the situation lasts and markets remain volatile, the higher costs are gradually included in ticket prices.
Reinstatement of fuel surcharges
Due to uncertainty in energy markets, airlines are reinstating fuel surcharges. These surcharges may vary based on prices and are presented as temporary measures.
For example:
Air India has imposed new fares that could reach up to around $280 for long-haul flights and around $205 for Europe.
Air France-KLM has added about 50 euros to round-trip economy tickets.
British Airways has increased fares on some routes by up to around 150 euros.
Cathay Pacific has doubled fares for long-haul flights.
Other companies, such as AirAsia X and some smaller European carriers, are also reviewing prices or considering further increases.
Impact of flight diversions
The impact of the conflict is not limited to fuel prices. Airspace restrictions are forcing airlines to divert flights to avoid sensitive areas.
This means longer routes, especially between Europe and Asia, increasing fuel consumption. As a result, each flight becomes more expensive to operate.
At the same time, refining capacity is limited in some regions, and geopolitical tensions are further straining supply chains, driving up the price of the fuel even faster than crude oil.
High demand versus costs
Despite the developments, demand for air travel remains high. However, capacity is not growing at the same pace due to a shortage of aircraft and delays in deliveries. This gives airlines more room to raise prices, as many passengers are still willing to pay more.
Even if oil prices fall, ticket prices do not immediately decrease. A major reason is the practice of fuel hedging.
This strategy protects companies from sudden increases, but prevents them from immediately benefiting from price drops. If fuel was purchased earlier at high prices, companies continue to pay those prices for months.
Strategies for increasing income
In addition to increasing ticket prices, airlines are also using other ways to cover costs:
Investments in more efficient aircraft that consume less fuel
Focus on lines with highest demand
Increase in additional revenue from baggage and other services
Airfares are a result of a complex balance between costs, demand and global developments. Rising oil prices usually lead to higher fares, but the effect depends on the timing and strategies of the companies.
Even if the geopolitical situation stabilizes, its impact may continue to be felt for a long period in the prices paid by passengers. /Pamphlet/
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