A sharp rise in oil prices linked to the escalating conflict in the Middle East is beginning to ripple across global aviation, with airlines and private aviation operators facing an even bigger challenge: the cost of jet fuel is rising far faster than crude oil.
Industry executives and analysts say refining margins have surged since the start of the US-Israeli military strikes on Iran, pushing jet fuel prices sharply higher and placing new pressure on margins across both commercial airlines and the private aviation sector.
Jet fuel surge outpaces crude oil
Jet fuel prices typically move in line with crude oil. However, since the conflict began, they have doubled, while crude prices have risen by roughly one-third.
The widening gap is largely due to refinery margins – the difference between the cost of crude oil and refined fuels – which have jumped dramatically as supply chains react to geopolitical tensions.
Rebecca Sharpe, chief financial officer at Cathay Pacific, said many airlines are only partially protected from the surge.
“Our hedging is on crude oil rather than jet fuel,” she said after the airline reported its latest financial results in Hong Kong.
“While that gives some protection, it doesn’t fully shield us from jet fuel price increases.”
Limited protection from hedging
Many airlines use hedging contracts to manage fuel price volatility, typically tied to crude benchmarks such as Brent crude.
However, hedging jet fuel directly is less common because the market is smaller and more expensive to access.
Analysts say this leaves a number of carriers — particularly in the United States and China — fully exposed to rising fuel costs, while European airlines generally have stronger hedging programmes.
Refining margins spike
Before the conflict, jet fuel in Asia was trading about $21 per barrel above crude oil prices. That margin surged to around $144 on 4 March, before easing to roughly $65 per barrel, according to market analysts.
Nathan Gee, head of Asia-Pacific transport research at Bank of America, said the sudden spike has left airlines particularly vulnerable.
“That’s what blew out last week, and that’s where everyone is less protected,” he said.
Impact on airlines and charter operators
Higher fuel costs are already prompting airlines to introduce fare increases, fuel surcharges and capacity adjustments.
Low-cost airlines, which rely heavily on price-sensitive passengers, are seen as particularly vulnerable to sustained fuel price increases.
According to analysts at J.P. Morgan, a 10% increase in jet fuel prices could reduce operating profit at Wizz Air by as much as 31%, with smaller but still significant impacts for airlines including Air France-KLM, Lufthansa Group, International Airlines Group and Ryanair.
In the private aviation market, operators of corporate jets and charter fleets face similar exposure, as fuel represents one of the highest variable costs for business aircraft operations.
Outlook uncertain
Fuel hedging can provide protection during sudden price spikes, but carries its own risks if prices later fall.
Executives say predicting future fuel costs remains difficult as geopolitical tensions continue to influence global energy markets.
Sharpe said the limited size of the jet fuel hedging market makes it challenging for airlines to fully manage the risk.
“The market is very thin, and it makes it very expensive,” she said. “Fuel prices can be highly volatile, and we simply don’t have a crystal ball about what comes next.”