Rising jet fuel prices are taking a toll on airlines. For example, United Airlines is cancelling flights due to the drastic increase in fuel prices caused by the war in Iran. KLM, meanwhile, is temporarily halting new hires, limiting business travel, and suspending the hiring of external consultants.
United Airlines is suspending approximately 5% of its planned capacity for this year, CEO Scott Kirby has announced. The US airline is taking this measure because the price of jet fuel has more than doubled in recent weeks.
An additional $11 billion in fuel costs
Fearing Iranian attacks in response to Israeli American airstrikes, virtually no tankers dare to sail through the Strait of Hormuz, a key route for the international transport of oil and liquefied natural gas.
United also expects oil prices to rise to $175 (€151) per barrel and not to fall below the $100 (€86) per barrel before the end of 2027. But it’s also possible that things won’t turn out to be that bad, Kirby added.
At current levels, the sharp rise in fuel prices would mean an additional $11 billion in fuel costs per year for the airline. At the same time, Kirsby assured employees that the airline has a solid financial buffer and does not intend to cut back on future investments.
Approximately 1% of capacity has already been cut due to the currently suspended flights to Tel Aviv and Dubai. In addition, unprofitable routes, which account for about 3% of capacity, will not be operated over the next two quarters. These include, for example, night flights or flights on Tuesdays, Wednesdays, or Saturdays. Furthermore, 1% of capacity will be cut at the United hub in Chicago.
€2 billion extra costs for KLM
Naturally, other airlines are also feeling the impact of the sharp rise in fuel prices caused by the war in Iran. For example, planes are having to take detours more often because the airspace over the Persian Gulf is unsafe, leading to longer routes and increased fuel consumption.
KLM estimates, for example, that a price level around $100 will cost the airline group an estimated 2 billion euros in additional expenses this year. Because KLM has been struggling with rising costs for some time, it is currently not hiring new employees, has temporarily stopped hiring external consultants, and is also limiting business travel.
KLM will also not be flying to destinations including Dubai and the Saudi cities of Riyadh and Dammam through May 17. Air France-KLM is also dealing with potential fuel shortages at certain destinations, particularly in Southeast Asia, which is affecting return flights.
Is an expensive summer on the way?
If oil prices remain high, it is expected that in the summer, fewer flights will be available, that long-haul travel will become more expensive, and that ticket prices will gradually increase.
More disruptions, such as rerouting and cancellations, will also occur, and in general, budget airlines such as Ryanair, with a low-cost base and strong hedging, will gain market share.
In Europe, airlines such as Finnair, SAS, and TAP Air Portugal will be the most vulnerable due to weak finances and high exposure to fuel-intensive operations.
