Oil Price Shock in Aviation: Who Foots the Bill?

Since the conflict began on 28 February 2026, more than 37,000 flights to and from the Middle East have been cancelled (Reuters, 09.03.2026). Iran, Iraq, Israel, Bahrain, Qatar, Kuwait and the United Arab Emirates closed their airspaces. The hub airports in Dubai, Abu Dhabi and Doha were at times completely shut down. Emirates, Qatar Airways and Etihad, which together carry roughly one third of all passengers on routes between Europe and Asia, were forced to drastically curtail their operations (Reuters, 09.03.2026). At the same time, the Strait of Hormuz is blocked, a waterway through which approximately 20 per cent of the world's oil supply is transported (Reuters, 23.01.2026).

The operational burden on airlines extends far beyond cancelled flights. Airlines are forced to reroute, carry additional fuel reserves and schedule intermediate stops. Fuel typically accounts for one fifth to one quarter of an airline's operating costs. According to Subhas Menon, chairman of the Association of Asia-Pacific Airlines, jet fuel prices rise by a multiple when crude oil prices increase (Reuters, 09.03.2026).

The industry's varying vulnerability is clearly visible in how airlines hedge against price increases. European and Asian airlines such as Air France-KLM, Cathay Pacific and the Lufthansa Group actively hedge against fuel price fluctuations. Lufthansa, for example, has hedged approximately 80 per cent of its fuel costs for 2026 through derivatives (FuW, 06.03.2026). US airlines, by contrast, have largely abandoned this practice over the past two decades. Southwest Airlines, long one of the industry's most active hedgers, ended its hedging programme in 2025, arguing that it was costly and unreliable (airliners.de, 09.03.2026).

The financial consequences can be significant. At Delta Air Lines, each additional cent per gallon of jet fuel increases annual fuel costs by approximately USD 40 million; at American Airlines, by approximately USD 50 million (airliners.de, 09.03.2026). In total, the four largest US carriers risk additional fuel costs of USD 5.8 billion if prices remain elevated (airliners.de, 09.03.2026). As a historical parallel, in 2005 Delta and Northwest Airlines were forced to file for bankruptcy following a jet fuel price shock caused by Hurricanes Katrina and Rita (Aerotime, 01.05.2020).

The share price reactions came swiftly: European, US and Asian airlines all fell significantly (VZ VermögensZentrum, 09.03.2026). But this uniformity is unlikely to persist if oil prices remain high. Hedged European carriers such as the Lufthansa Group, which reported solid operating figures for 2025 and signalled further growth for 2026, have a time-limited but meaningful cost buffer. They also benefit from the fact that the loss of Middle Eastern hub airports is boosting demand for direct flights. Qantas reported that its European flights in March had a load factor of over 90 per cent, compared with a usual 75 per cent. Cathay Pacific added extra flights to London and Zurich (Global Banking & Finance Review, 10.03.2026).

Overall, the hedging strategy could become a key competitive differentiator for European airlines in the short term. While unhedged US airlines are more exposed to oil prices, hedged European and Asian carriers have a certain buffer. Rising ticket prices can offset some of the additional costs, but if prices climb too high, demand risks falling, particularly among price-sensitive leisure travellers (Reuters, 09.03.2026). As long as the outcome of the conflict, and thus the duration of the oil price shock, remains uncertain, the risks remain front and centre.