Global airline profitability faces significant challenges as the ongoing Middle East conflict causes soaring fuel prices and disrupts international travel networks, a recent report from Moody’s Ratings indicates. Fuel costs, the second-largest expense for airlines after labor, are expected to stay elevated, exerting pressure on airline margins despite sustained travel demand.
The conflict has led to increased energy prices, with Brent crude oil nearing $100 per barrel—about 45% higher than the 2025 average—and Gulf Coast jet fuel prices surpassing $3.50 per gallon, approximately 65% above 2025 levels. Airlines are differentially impacted based on their hedging strategies, regional exposures, and the extent of airspace restrictions affecting flight routes.
While Moody’s projects that some disruptions may be temporary, persistent market volatility in energy prices could continue to strain airline finances. Historically, each dollar increase in Brent crude correlates with a nearly three-cent rise in jet fuel prices per gallon, amplifying impact on profit margins. Low-cost carriers like Spirit Airlines, Frontier, and JetBlue, currently operating on thin margins, face heightened risk of sustained losses.
Major US carriers such as Delta and United are comparatively better positioned to handle rising costs, yet they remain susceptible to disruptions in global travel flows, especially those reliant on international partnerships and routes. European carriers including Lufthansa and easyJet have employed significant hedge coverage to counter immediate cost increases, though refinery margin fluctuations, known as the crack spread, continue to pose risks. In Latin America, airlines are highly exposed due to limited hedging and soaring fuel expenses, which can sharply reduce their profitability.
The geopolitical conflict has also disrupted key air corridors connecting Europe, the Middle East, and Asia, resulting in longer flight durations and operational complexities. Although Asia-Pacific airlines like Qantas and Air New Zealand are relatively insulated through hedging, they still face risks from refining margin volatilities. For instance, Air New Zealand recently withdrew its earnings guidance for 2026 amid weaker financial performance.
In response, airlines are implementing strategies such as fare increases, operational efficiencies, and fleet modernization with fuel-efficient aircraft to mitigate cost pressures. Nevertheless, the industry’s outlook remains fragile, heavily dependent on the duration of geopolitical tensions and energy price trajectories. Prolonged high fuel costs could lead to sustained profit margin compression, presenting significant challenges for global aviation.
