The aviation industry has slashed profit forecasts for 2026 by nearly half following a dramatic spike in jet fuel costs linked to geopolitical tensions in the Middle East. The sector now faces a $100 billion increase in fuel expenses, forcing carriers worldwide to fundamentally reassess their financial expectations.
The cost pressures stem from the ongoing conflict involving Iran and its impact on oil supply routes. The International Energy Agency has warned that Europe has only six weeks of jet fuel remaining, with flight cancellations likely if Middle East oil supplies are not restored. Oil tankers remain stuck behind the Strait of Hormuz, creating uncertainty about fuel availability.
US carriers alone spent $6.5 billion on fuel in April, illustrating the severity of the price surge. Some carriers are already taking action. Lufthansa has announced plans to cancel 20,000 flights between May and October to preserve fuel, cutting approximately 120 daily flights from its schedule and dropping unprofitable routes from Munich and Frankfurt.
Travel companies dependent on aviation are also feeling the impact. TUI, Europe's largest holiday operator, reported that the Middle East conflict cost it €40 million in March. The company was forced to repatriate almost 12,000 holidaymakers and staff, including 5,000 guests from cruise ships anchored in Abu Dhabi and Doha, plus 5,000 additional European holidaymakers from regional destinations. As a result, TUI cut its annual profit forecast from €1.41 billion to between €1.1 billion and €1.4 billion.
Booking patterns have shifted as consumers demonstrate caution. TUI reported that booking revenue and hotel occupancy fell 7 percent year-on-year for summer travel, though demand has partially shifted from eastern Mediterranean destinations to western options in Spain, Portugal, and Greece. Holidaymakers are booking closer to departure dates rather than planning far in advance.
Some airlines have attempted to protect themselves from price volatility. TUI hedged 83 percent of its summer jet fuel requirements and 62 percent of winter season needs. The company has also hedged more than 80 percent of energy costs for its cruise business for the full financial year.
Rising fuel costs have broader economic consequences. The UK's Office for National Statistics reported that increased air fares contributed to a 4.7 percent rise in overall transport prices in the year to March, the fastest annual rate since December 2022.
Aviation industry leaders gathered at the Iata AGM summit in Rio de Janeiro to discuss these challenges. Airlines have lobbied governments to relax environmental regulations, modify passenger rights protections, and cut taxes on flying to manage higher operational costs. Despite warnings of fuel shortages and potential summer disruption for European travelers, the industry continues operating while navigating unprecedented cost pressures.