Flights across the Middle East remained largely suspended on Tuesday after a weekend of massive disruptions across the Persian Gulf after the United States and Israel began an airstrike against Iran, in which Iran launched retaliatory strikes.
Dubai-based Emirates and Abu Dhabi-based Etihad Airways said they would begin limited cargo and repatriation flights but would continue to suspend all scheduled services. Meanwhile, Qatar Airways said flights to and from its Doha hub would remain “temporarily suspended”.
As the conflict appears likely to last beyond the initial assault (President Donald Trump said Monday that the campaign could last “four to five weeks” or longer), the broader geopolitical impact has begun to come into view.
While travelers will hopefully see air operations return to normal soon, they may also see an unpleasant surprise as the spring and summer travel seasons begin: higher prices.
Changes in airfares are often tied to oil prices, which rose more than 10% from the previous week to more than $75 a barrel on Tuesday afternoon. More than 14 million barrels of crude oil a day are shipped through the Strait of Hormuz, which is effectively closed amid uncertainty surrounding the fighting. A prolonged shutdown or slowdown could have significant impacts on global oil supply.
U.S. airline stocks plunged on Monday and Tuesday amid fears of higher fuel costs and the potential for further disruption to international travel. Higher prices will potentially lead some travelers to postpone trips and cancel them for safety reasons.
A report from TD Cowen on Monday highlighted those concerns. It noted that the conflict’s impact on fuel prices “is likely to drive price action across airlines in the near term,” putting pressure on airline profits.
In 2022, following the outbreak of the Russian invasion of Ukraine, oil prices rose similarly. At the time, airlines were able to take advantage of supply shortages stemming from the COVID-19 pandemic and raise fares to cover the cost of jet fuel, especially as the trend of “revenge travel” continued to rise.
“Airlines typically signal that they can pass through fuel price increases with a 2-3 month delay, assuming demand remains healthy,” airline analyst Tom Fitzgerald wrote in the report.
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In 2022, Airlines built the price of fuel into higher fares. instead of separate surcharges, with the goal of earning at least $15 to $20 more per ticket. Fuel typically accounts for about a third of airlines’ total costs, the second-highest expense after labor.
The degree to which oil prices rise now depends on a wide range of factors, including how long the conflict lasts and whether the Strait of Hormuz remains closed throughout it. The impact on airlines – and the degree to which fares increase – also depends directly on how much the price of oil rises.
The good news for travelers on a budget is that airlines are likely to recoup much of the higher fuel costs by subtly increasing fares in first class, business class and premium economy, according to Henry Harteveldt, a travel industry consultant and president of Atmosphere Research Group.
“This could keep prices more affordable and competitive for regular and discounted coach fares, as well as basic economy,” Harteveldt said.
Of course, that would only help offset the costs for airlines with those premium cabins.
Low-cost airlines could be hit harder and “forced to pass on higher costs to more of their travelers,” Harteveldt added. “If oil prices go up to about $100 a barrel, which I’ve heard speculation about, and if they stay at that level, it could be really problematic for airlines.”
Ultimately, Harteveldt said, the question of the impact on airfares comes down to how long the conflict lasts and how long the global oil trade is disrupted.
“What we are seeing is a temporary increase in oil prices,” he said. “The question none of us knows the answer to is how long does the temporary last?”
Even if prices rise, it seems likely that customers will be willing to pay, at least for a period, TD Cowen’s Fitzgerald suggested.
“Impacts on gasoline prices and broader consumer discretionary spending will also need to be monitored,” he wrote. But still”[t]”Travel demand has shown encouraging resilience in the face of several shocks this decade.”
