Published by Global Banking & Finance Review®
Posted on March 30, 2026
5 min readLast updated: March 30, 2026
Add as preferred source on GoogleAirlines are sharply raising fares and cutting capacity in response to a jet fuel price surge triggered by the late February U.S.–Israel–Iran conflict, threatening projected record profits of $41 billion in 2026 and risking demand decline as consumers face higher gasoline costs.
By Rushil Dutta, Sameer Manekar and Yadarisa Shabong
March 30 (Reuters) - Global airlines have begun to hike fares and cut capacity to cope with the sudden surge in the oil price, but the industry's ability to remain profitable may depend on whether consumers pull back on flying as gasoline costs threaten household budgets.
Before the U.S.-Israeli conflict with Iran began last month, the airline industry had forecast record profits of $41 billion in 2026, but a doubling in jet fuel prices has placed that at risk and forced carriers to rethink their networks and strategies.
Carriers ranging from United Airlines to Air New Zealand and Scandinavia's SAS have announced capacity cuts and fare hikes, while others have imposed fuel surcharges.
"Airlines face an existential challenge," said Rigas Doganis, who once headed Greece's former national carrier, Olympic Airways and served as a director of Britain's easyJet.
"They will need to cut fares to stimulate weakening demand while higher fuel costs will be pushing them to increase fares. A perfect storm," said Doganis, who now chairs London-based consultancy firm Airline Management Group.
RECORD PASSENGER TRAFFIC
Last year, the industry reported record global passenger traffic that rebounded to about 9% above pre-pandemic levels even in the face of persistent supply-chain challenges that affected deliveries of new planes.
Record post-pandemic demand for travel and persistent supply-chain challenges had constrained capacity growth and given airlines significant pricing power as they filled more seats on each plane.
But the scale of the increases needed to make up for the jet fuel price surge is huge at a time when consumers are under pressure from higher gasoline prices that could curb discretionary spending.
"The only way to get prices up is to reduce capacity," said Barclays' head of European transport equity research Andrew Lobbenberg. "That is what I would expect to see happen this time, and it's what we saw in the previous occasions when we had other crises; people just have to start trimming capacity."
HIGHER TICKET PRICES
United Airlines CEO Scott Kirby told ABC News last week that fares would need to rise 20% for the airline to cover the higher fuel costs.
Hong Kong's Cathay Pacific Airways has lifted fuel surcharges twice in the last month, and from Wednesday a return trip from Sydney to London will attract an $800 fuel surcharge. Before the Iran conflict, a normal round-trip economy-class fare on the route was roughly A$2,000 ($1,369.60).
Low-cost carriers could struggle the most given their passengers are more price-sensitive than the corporate customers and wealthy consumers who have been increasingly targeted by premium rivals like Delta Air Lines and United Airlines, analysts say.
"I think for the more price-sensitive travellers, even the short-haul flying trip gets downgraded, potentially to rail or to bus or other alternatives," said Nathan Gee, Bank of America's head of Asia-Pacific transport research.
OIL SHOCKS
The Middle East conflict is the fourth oil shock for the airline industry since the turn of the century, though the first in which carriers like Vietnam Airlines have expressed concern about securing physical supplies of fuel due to the Strait of Hormuz closure.
There was one in 2007-2008 before the global financial crisis dented demand, another after the Arab Spring around 2011, and a third after the Russia-Ukraine war broke out in 2022.
A string of mergers between 2008 and 2014 like Delta-Northwest and American Airlines-US Airways reduced eight major U.S. airlines to four and brought on the era of tighter capacity control, while low-cost carriers such as Ryanair and India's IndiGo leaned on single-aircraft fleets and fast turnarounds to keep unit costs low.
Replacing older, thirstier planes with more fuel-efficient models is an obvious way for carriers to reduce costs, but a severe supply-chain shortage in the wake of the pandemic and issues with new-generation engines have delayed deliveries.
And while U.S. ultra-low-cost carriers have some of the newest, most fuel-efficient planes in the industry, if travel demand falters, paying for the new planes could become a barrier to profit.
Dan Taylor, head of consulting at aviation advisory firm IBA, said the current oil shock was expected to widen the gap between financially strong and weaker airlines.
"Carriers with robust balance sheets, strong pricing power, and reliable access to capital are better positioned to absorb ongoing pressures," he said on the firm's website. "In contrast, airlines with low profitability and limited funding options may face increasing financial stress."
($1 = 1.4603 Australian dollars)
(Reporting by Rushil Dutta, Sameer Manekar and Yadarisa Shabong in Bengaluru; Additonal reporting by Shivansh Tiwary in Bengaluru, Joanna Plucinska in London and Julie Zhu in Hong Kong; Editing by Jamie Freed)
Airlines are raising fares, cutting capacity, and adding fuel surcharges to offset the surge in fuel prices.
Higher fuel costs put airline profits at risk, especially if consumers reduce travel due to rising ticket prices.
Low-cost carriers are more vulnerable, as their price-sensitive customers may switch to alternative transportation.
Yes, previous oil shocks occurred in 2007-2008, post-Arab Spring (2011), and after the Russia-Ukraine war in 2022.
Airlines can replace older planes with more fuel-efficient models, but supply-chain shortages limit this option.
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