Rising Fuel Costs Drive Up Airfare as Middle East Conflict Persists

The surge in fuel prices following recent conflicts in the Middle East is already impacting air travel costs, with airlines beginning to pass increased expenses onto consumers. While travel demand remains strong, the duration of elevated jet fuel costs will determine the extent of fare increases.

Airline Responses to Rising Fuel Prices

Cathay Pacific announced it would approximately double fuel surcharges on tickets starting March 18. Qantas has also raised fares to offset costs, while Scandinavian Airlines cited “unusually rapid and substantial” fuel price increases as the reason for its price adjustments. Air New Zealand has temporarily withdrawn its financial outlook, citing fuel market instability and implementing “initial fare adjustments.”

Executives from U.S. Airlines are scheduled to discuss the impact of rising fuel costs with investors at the J.P. Morgan Industrials Conference in Washington, D.C. Analysts anticipate a negative impact on first-quarter and potentially first-half earnings, depending on how long fuel prices remain elevated. United Airlines CEO Scott Kirby acknowledged that higher fares are likely due to the fuel price surge, but noted that travel demand remains robust.

Fuel Costs: A Major Airline Expense

Jet fuel represents a significant portion of airline operating expenses, accounting for approximately one-fifth or more of total costs. United Airlines spent $11.4 billion on fuel in the past year, with an average price of $2.44 per gallon, according to a securities filing. As of Wednesday, March 12, 2026, U.S. Jet fuel prices reached $3.78 per gallon, according to Platts.

Jefferies airline analyst Sheila Kahyaoglu expects the most significant financial impact to be felt within the next 30-90 days, as airlines have already booked yields based on lower fuel price assumptions. She also indicated that Delta Air Lines and United Airlines, due to their focus on high-end demand, are better positioned to absorb these costs than other carriers.

Airlines Adapt to Higher Costs

Historically, airlines have responded to fuel price increases by implementing additional fees, such as baggage charges, or making operational adjustments to reduce weight. For example, United Airlines switched to a lighter paper stock for its in-flight magazine in 2018, saving an estimated $650,000 annually in fuel costs. American Airlines transitioned to digital manuals for flight attendants in 2014, saving an estimated $650,000 per year in fuel.

Capacity and Demand Dynamics

While higher fuel prices often lead to fare increases, the impact is also influenced by travel demand and capacity. If airlines raise fares and passenger demand weakens, capacity may be reduced through fewer flight frequencies or broader route cuts. Airlines are carefully balancing pricing strategies to maximize revenue while avoiding empty seats.

Capacity, particularly to and from the Middle East, is currently constrained due to airspace closures and flight disruptions. Cirium reports that over 46,000 flights to and from the region have been canceled since February 28. These constraints are contributing to higher fares and increased demand for alternative routes.

Fuel Hedging and Future Outlook

Most U.S. Airlines no longer hedge fuel costs, leaving them more vulnerable to price fluctuations. Southwest Airlines discontinued its fuel hedging program last year and currently has no plans to reinstate it.

Experts note that demand for jet fuel is relatively inelastic, meaning that airlines cannot simply reduce flights when fuel costs rise. As Rick Joswick, head of near-term oil research and analytics at S&P Global Energy, stated, “You can’t dry up an airport.”