When an industry’s most fundamental input—the thing that every single operation depends on—suddenly becomes both costly and uncertain, a certain kind of quiet dread spreads throughout the sector. The airline industry currently finds itself in that situation.
Staring at a fuel gauge that keeps falling while the price per gallon keeps rising instead of fumbling over passenger demand or getting caught up in labor disputes. Even though most people haven’t yet made the connection, travelers are already feeling the effects of the war in Iran.
| Category | Details |
|---|---|
| Topic | Iran War impact on global aviation fuel supply |
| Key Event | U.S. and Israel launched military strikes on Iran beginning February 28 |
| Fuel Price (Feb 27) | $2.50 per gallon (U.S. average across major hubs) |
| Fuel Price (April 2) | $4.88 per gallon — nearly double in under five weeks |
| Primary Cause | Effective closure of the Strait of Hormuz, cutting off roughly one-fifth of world oil supply |
| Airlines Affected | United Airlines, Delta Air Lines, JetBlue Airways, Deutsche Lufthansa, and others globally |
| United Airlines CEO | Scott Kirby — warned of potential Asia flight cuts, preparing for oil above $100/barrel through 2027 |
| Lufthansa CEO | Carsten Spohr — activated contingency teams; possible aircraft groundings under consideration |
| Delta Q1 Revenue | $15.9 billion — record March-quarter revenue despite fuel surge |
| Baggage Fee Hikes | Delta, United, JetBlue all raised checked bag fees; Delta’s first bag now $45, second $55 |
| Industry Analyst Warning | Savanthi Syth, Raymond James — capacity cuts likely if fuel holds above $4–$4.50/gallon |
| Credit Risk Watch | Fitch Ratings flagged potential ratings pressure if high fuel costs persist |
| Sector Comparison | Crisis resembles the 1973 oil shock more than the COVID-19 demand collapse |
The cost of jet fuel in major American cities, including Chicago, Houston, Los Angeles, and New York, increased from $2.50 per gallon on February 27 to $4.88 by early April since American and Israeli forces began attacking Iran at the end of February. That is not a slow upward drift. In five weeks, that will almost double.
Iran’s effective closure of the Strait of Hormuz, the narrow waterway through which about one-fifth of the world’s oil flows, has choked off both crude supplies and refined products like jet fuel at the same time. This is a blunt and physical mechanism. The market took notice right away, and it hasn’t stopped since.
It’s important to consider the true implications of that figure for an airline. After labor, fuel is usually the biggest operating expense; it’s not a rounding error or something that goes unnoticed. Carriers must decide whether to absorb losses they cannot bear or pass costs on to passengers when fuel spikes this dramatically. The majority are doing both.
In recent weeks, checked baggage fees have been increased by Delta, United, and JetBlue. Delta now charges $45 for the first bag and $55 for the second. Passengers will pay $200 for a third bag. By framing the changes as reflecting “evolving global conditions and industry dynamics,” Delta is subtly implying that your travel budget is now affected by the Middle East conflict.
The fact that demand isn’t the issue is what distinguishes this crisis from the COVID-19 demand collapse. People still want to fly, according to airline executives. Demand signals are still strong, United CEO Scott Kirby told reporters late last month. Strong reservations and the operational math that underpins every flight, however, are increasingly at odds.
Kirby also pointed out that things are getting harder in Asia. He stated openly that the airline would have to reduce flights in Asia because United operates more flights there than any other U.S. carrier, and that it was “not impossible” that airlines as a whole might reduce service throughout the region.
In Europe, the image is more crisp. In a webcast, Deutsche Lufthansa CEO Carsten Spohr informed staff members that the airline had designated teams to create backup plans tailored to Middle East situations, including the potential to ground certain aircraft in the event that fuel supplies continue to decline.
It’s amazing to see a company the size of Lufthansa get ready for possible groundings due to fuel scarcity rather than mechanical problems or bad weather. It seems more like an indication of the severity of the underlying disruption than a corporate precaution.
The actual movement of jet fuel contributes to this geographical disparity. There is some buffer because the United States produces large amounts of jet fuel domestically. However, since aircraft refuel locally, a U.S. airline operating a long-haul international route may encounter difficulties with fuel availability and cost at the foreign end of the trip.
Kirby specifically identified the West Coast as being especially vulnerable within the United States, pointing out that it is more susceptible to supply weakness than other regions due to its limited refining capacity and poorer pipeline connectivity. At the regional level, the same reasoning that makes the Strait of Hormuz significant on a global scale also holds true.
Additionally, airlines are operating longer flights. Carriers are being redirected into smaller, less effective routes between Europe and Asia due to Iranian airspace being off-limits and traffic already being forced out of Russian and Ukrainian corridors.
This results in increased fuel consumption per flight, increased crew duty hours, decreased aircraft utilization, and even thinner operating margins. It’s a compounding issue rather than a single one, and it’s still unclear if things will get better before the busiest summer travel season.
With a record $15.9 billion in revenue in the first quarter, Delta is still anticipating a pre-tax profit of about $1 billion for the June quarter. Despite sharply higher fuel prices, CEO Ed Bastian reported that earnings were over 40% higher than the previous year. That’s a significant accomplishment, but Delta has a unique advantage: it owns a refinery, so fuel sales will benefit it even as its own operations experience cost pressure. Not all carriers have that kind of hedge.
The math is more difficult for smaller airlines. According to Raymond James analyst Savanthi Syth, capacity reductions occur if fuel prices remain above $4 to $4.50 per gallon for a prolonged period of time. Fitch Ratings has already made it clear that it is keeping a close eye on the industry in case ratings pressure arises.
The industry is perceived as being both financially divided enough that a protracted crisis won’t affect everyone equally and resilient enough to withstand a brief shock. It will be navigated by the bigger, more capitalized carriers. Smaller ones might not.
Although the ceasefire that was announced earlier this week provided some short-term respite, few in the industry appear to be prepared to accept it as a final solution. The market’s confidence in the stability of the Middle East at the moment is understandably precarious, and the Strait of Hormuz does not reopen overnight.
Airlines are making plans based on the assumption that oil prices will remain above $100 per barrel through 2027, not because they are positive it will, but because the consequences of making a mistake would be too great. Conditions might improve more quickly than anticipated. It’s also possible that the industry is just starting to adapt and that this will be the new normal for some time.
