Jet fuel costs have increased by 81% since the start of the war in Iran and are up by 124% this year. This rise is likely to cause a sharp pullback in corporate and household travel as airlines partially pass along the price shock downstream to consumers.
Cathay Pacific, for example, said it would hike its fuel surcharge by 105% across all flights, joining a host of other airlines announcing such surcharges including Air France-KLM, Air India, and Hong Kong Airlines.
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Like all energy-sensitive firms, airlines will need to bring into alignment their balance sheets with the cost increases caused by the oil shock.
The choices are always a mix of accepting thinner profit margins, passing along costs to customers and reducing headcount.
The Bloomberg fair value price on jet fuel futures shows a similar increase of 108% for the year and 60% since the start of the war.
Any way one slices and dices the data, we are on our way to a similar price shock that was observed in the aftermath of the Russian invasion of Ukraine.
