A $100 Billion Fuel Bill Is Forcing Airlines to Raise Fares

Airlines will spend roughly $100 billion more on jet fuel in 2026 than they did last year, and airfares are rising to cover the gap. The International Air Transport Association (IATA), the industry’s global trade body, announced at its annual summit in Rio de Janeiro on Sunday that global airline profits are on track to halve from $45 billion in 2025 to $23 billion this year, with jet fuel hitting $152 a barrel, up 70% from $90 in 2025, after the March closure of the Strait of Hormuz severed about 20% of the world’s oil supply and pushed the refinery premium on jet fuel to a historic high.

Long-haul and premium cabins are set to absorb the steepest fare increases, with leisure short-haul routes last to feel direct surcharges. European travel carries a further complication unrelated to oil: the bloc’s new biometric Entry-Exit System (EES) produced queues of up to four hours when it launched in April and faces an absolute implementation deadline on September 7.

A $350 Billion Fuel Bill

The Cost Mechanics

IATA’s economic outlook, released at the Rio summit on June 7, puts the fuel cost surge in a single year’s movement: airlines are paying nearly 40% more to keep planes in the air than they did in 2025. The mechanism is a compound shock. Crude oil averaged $95 a barrel for the year, up 37% from $69 in 2025, and the crack spread, the refinery premium charged for aviation-grade kerosene over crude, sits at a level the body describes as historically unprecedented. Jet fuel now accounts for more than 31% of total airline operating costs, up from 25.4% in 2025. Net profit per passenger has fallen to less than half of last year’s figure.

• $350bn: total airline fuel costs in 2026, up from $252bn in 2025
• $57 per barrel: crack spread between jet fuel and crude, described by IATA as a historic high
• 31.4%: fuel’s share of total operating expenses, up from 25.4% in 2025
• $4.50: net profit per passenger in 2026, down from $9.10 in 2025

The Hedging Gap

Airlines collectively hedged roughly one third of their expected fuel consumption for 2026, which provides a cushion against crude oil price swings. The structural problem is that most aviation hedges are written against crude, the most liquid commodity market. The crack spread, sitting at a historic $57 a barrel, is largely unhedged territory. As diesel and gasoline competed with jet fuel for refinery priority when Middle Eastern supply tightened, airlines had no financial instrument covering that shift in refinery economics.

IATA’s June 7 economic outlook drew a comparison to 2008 as the closest historical parallel, noting that outside the COVID recovery, a revenue increase of this scale last occurred when jet fuel rose 40% that year. Total industry revenues are expected to grow 9.4% to $1.165 trillion in 2026, yet operating expenses are forecast to rise 13%, which is how an industry posting record revenues still manages to halve its profits. Willie Walsh, IATA’s director general, was direct at the summit: “It’s going to be very challenging and for a lot of airlines the increase in the fuel bill is potentially existential.”

Airlines also carry compliance costs from the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), estimated at $1.2 to $1.6 billion for the year, and from Sustainable Aviation Fuel (SAF) purchases projected at $4.3 billion. Both are small relative to the fuel bill itself, but neither shrank as conventional jet fuel prices rose.

Long-Haul Flyers Pay First

Walsh was direct about the consumer implications at Rio. “High oil prices will inevitably mean higher ticket prices,” he said. “There’s just no way to avoid that.” Industry polling conducted by IATA found roughly half of passengers were prepared to spend substantially more on fares if ticket prices tracked oil, a result Walsh described as consistent with a healthy summer booking picture.

Sean Doyle, chief executive of British Airways, made the logic explicit on the fringes of the conference. BA’s network is concentrated in long-haul routes, corporate contracts, and premium cabins. Those segments, Doyle argued, face a more direct pass-through of higher fuel costs than leisure short-haul routes, where carriers compete aggressively on price and demand is sensitive to fare changes.

A brand like BA, which has got a lot of long haul, a lot of corporate, a lot of premium; we’d expect maybe to have more pass-through of prices than maybe a carrier who’s solely competing for leisure short haul.

Sean Doyle, chief executive of British Airways, speaking at the IATA annual summit in Rio de Janeiro, June 2026.

For budget carriers, the constraint is capacity. Short-haul leisure seats are the last to absorb direct fare surcharges, but they are among the first routes cut when fuel costs make marginal flying unviable. Airlines globally removed 9.3 million seats from summer schedules covering June 1 to September 30, according to aviation analytics firm Cirium. Cathay Pacific announced cancellations of about 2% of scheduled passenger flights through June 30; Lufthansa removed aircraft from its CityLine regional subsidiary, citing “significantly increased kerosene prices.” Deutsche Bank estimated non-US airline capacity to and from US markets would contract 2.3% year-over-year in the June quarter as higher prices and limited availability drove the cuts.

IATA’s passenger polling supports the near-term booking outlook. Roughly half of those surveyed said they were prepared to spend more, and traffic is expanding at 2.4% globally. Airlines are expected to carry 5.1 billion passengers this year at a record 84% seat fill rate.

Middle Eastern Carriers Swing to Losses

No region in IATA’s 2026 outlook carries the year’s damage more directly than the Middle East. Carriers there are expected to move from a combined $7.2 billion net profit in 2025 to a $4.3 billion net loss this year, an $11.5 billion reversal in a single year. Demand measured in revenue passenger kilometres is projected to fall 11.4%, against 6.8% growth in 2025. Capacity is down 4.4% as carriers strip out routes that cannot be filled at viable yields. The regional net margin falls from 9.4% to negative 6.1%, the steepest regional decline across IATA’s global forecast.

At the Rio summit, IATA’s director general acknowledged the Gulf carriers’ situation. “The Gulf carriers face operational uncertainty following a near-complete shutdown of airspace at the outbreak of the war,” he said. “These carriers are doing an amazing job maintaining connectivity, but major financial impacts are unavoidable.” The overall industry remained profitable, he added, with traffic growing and concerns about physical fuel shortages now past.

Smaller carriers are in a more precarious position. IATA warned that airlines entering 2026 with weak balance sheets are “certainly struggling.” Spirit Airlines permanently ceased operations on May 2, with soaring fuel costs widely cited as the proximate cause, according to the Morgan Lewis aviation market impact analysis. The IATA director general used the word “existential” at Rio to describe the risk for carriers in similar financial positions.

Europe’s Summer, Under Two Pressures

The Fuel Gap

Europe’s fuel exposure runs deeper than the global average. According to Air Cargo Week’s Hormuz supply analysis, citing Argus Media pricing data, the strait carries around 40% of the continent’s jet fuel imports in normal conditions, and no shipments have passed through since the conflict began in late February. Europe held approximately 75 million barrels in strategic and commercial storage going into the disruption, covering the spring months. A peak summer travel season, when airport consumption rises sharply, will test those levels.

Booking patterns have shifted. IATA data shows more British and European travellers choosing intra-European routes this summer over long-haul destinations, as Gulf hub disruption and higher transatlantic fares compress demand inward. US carriers are adding extra flights to European cities to capture the redirected demand from American travellers also facing constrained Gulf-hub options.

The Border Queue

The EU’s Entry-Exit System, the biometric border scheme requiring fingerprints and facial scans from non-EU nationals entering the Schengen Area, went live across all 29 member states on April 10. The first day produced queues of up to four hours at multiple airports, passengers missing flights, and a joint statement from airport and airline groups demanding emergency suspension authority.

IATA called at the Rio summit for the European Commission to rewrite legislation ensuring that flexibility to suspend the checks could continue past September 7, the absolute deadline after which full biometric registration of all applicable travellers becomes mandatory with no suspension mechanism remaining. Rafael Schvartsman, IATA’s vice-president for Europe, described the processing gap in practical terms: normal border control clears a passenger in 20 to 25 seconds. IATA’s joint statement with airport bodies, filed in February, put the system’s own processing estimate at 90 seconds per passenger, with technical unreliability adding further unpredictability during peak hours.

Airlines and airport bodies identified four compounding problems in a letter to EU Commissioner Magnus Brunner earlier this year:

• Chronic understaffing at border control posts across Schengen member states
• Unresolved technology failures, including system crashes at multiple airports during the phased rollout from October 2025
• Near-zero uptake of the Frontex pre-registration app, designed to let travellers submit biometric data before arriving at the border
• A wide divergence between EU authorities’ processing time estimates and actual conditions at busy international hubs

Greece has unilaterally announced it will not conduct EES checks on UK nationals, protecting its largest inbound tourist market. Schvartsman pointed to the broader picture: American carriers are adding extra flights to European destinations this summer, and US nationals fall under the same EES requirements. Congestion at major Schengen hubs draws from the full international volume arriving this season, and the Greek exemption covers only a fraction of that total.

The Tolerance Question

Walsh framed the industry’s central uncertainty at Rio in one sentence. “The big unknown is how long travellers and shippers can tolerate the higher costs of connectivity,” he said, adding that IATA’s passenger survey showed travellers were braced for higher fares and prepared to spend more.

The industry is operating on margins that leave almost no buffer. The IATA director general described the environment at Rio as one of “wafer-thin margins.” A 2% net profit margin across $1.165 trillion in revenues means the industry earns about $23 billion before the next disruption arrives, compared with $45 billion a year ago. The 2008 episode cited as the closest historical parallel saw jet fuel spike roughly 40% before falling as the financial crisis collapsed demand; aviation had rebuilt its financial position by 2010. The current shock is 70%, the crack spread sits at a historic extreme, and IATA’s own macro forecast includes GDP growth slowing to 2.5% and inflation rising to 5% for the remainder of the year.

The IATA director general said fears about physical fuel shortages have now passed, separating the current situation from the supply anxieties that dominated the spring. Prices have not eased with them. September 7 is the next date on the industry calendar: the point at which EES suspension flexibility expires, Europe’s border queues lengthen by mandate, and the summer peak meets a system that produced four-hour lines on its opening day.