BREAKINGVIEWS-Airline fuel cloud lacks 2022-style silver lining

By Oliver Taslic

BRUSSELS, March 20 (Reuters Breakingviews) - Airlines have a new crisis. A vertiginous spike in jet fuel prices is evoking unpleasant memories of a similar jump amid the 2022 oil shock. The risk for European carriers – whose CEOs met in Brussels at Thursday’s Airlines for Europe shindig – is that raising fares to offset higher costs will be harder now than in the era of post-Covid “revenge travel”.

The bosses of Ryanair RYA.I, IAG ICAG.L, Air France-KLM AIRF.PA, Deutsche Lufthansa LHAG.DE and easyJet EZJ.L were unsurprisingly concerned by events in the Middle East. Flight routes are less the problem – at around 8% of capacity, Wizz Air WIZZ.L was the major carrier with the highest proportion of traffic scheduled to touch the region, per Bernstein. But jet fuel is a big headache. European prices have more than doubled since late February, with S&P Global noting that about half the continent’s imports in 2025 came from the Middle East.

The combination of nearby conflict and surging fuel prices is reminiscent of 2022, when Western sanctions following Russia’s invasion of Ukraine prompted oil to exceed $120 a barrel. But despite rising crude prices and the closure of Russian airspace to many European carriers – particularly inconvenient for Asia-heavy groups like Lufthansa – the continent’s airlines managed the fallout relatively well. Lufthansa’s 2023 adjusted operating profit topped even last year’s level, despite a solid 2025 for the airline sector.

Two key factors helped: European airlines’ penchant for hedging their future fuel purchases, and extraordinary travel demand coming out of Covid-19. With oil prices hovering around $107 a barrel, the first decision has been proven prudent once again. CEOs in Brussels agreed the sector was well hedged – certainly to the end of the summer, with Ryanair boss Michael O’Leary touting 80% protection in the year to March 2027.

The demand factor is trickier. Global airline trade association IATA in December forecast 4.9% passenger traffic growth for 2026, compared to more than 30% in 2023 amid rocketing post-pandemic travel demand. The risk for airlines is that, if the situation in the Strait of Hormuz isn’t resolved soon and fuel prices remain high, they’ll be forced to raise fares in a more normalised travel environment. Perhaps more importantly, that would also be in an economy potentially suffering from slower growth and higher interest rates.

There are still a few tailwinds. Major U.S. carriers like American Airlines AAL.O don’t hedge fuel purchases and will have little choice but to hike fares, meaning Europeans may be able to capture market share on North Atlantic routes, while O’Leary pointed to strong intra-Europe demand over Easter. But the longer fuel prices stay high, the more fare hikes will become inevitable. EasyJet CEO Kenton Jarvis delivered a simple message: “Book your flights early.”

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CONTEXT NEWS

The CEOs of easyJet, Ryanair, Air France-KLM, Deutsche Lufthansa and British Airways owner IAG all attended the Airlines for Europe (A4E) 2026 Aviation Summit in Brussels on March 19.