If you've been eyeing a family holiday to Europe this summer, brace yourself. Jet fuel prices have risen from $2.11 per gallon at the start of the year to $3.40 by March, a gain of more than 60%. The culprit: the escalating conflict between the US, Israel, and Iran.
The practical impact is already hitting Australian travellers hard. Qantas has no economy class seats available on its normal Perth and Singapore routings to London until March 17, when a one-way flight costs $3129. The situation is similarly grim on other routes. Qantas's flight from Perth to London is temporarily stopping in Singapore to refuel, and its Perth-London and Perth-Paris routes are more than 90% full this month, 15 percentage points higher than normal.
Airlines aren't absorbing these costs; they're passing them directly to passengers. Cathay Pacific said it would roughly double fuel surcharges on tickets starting March 18, while Qantas is raising fares to help cover its costs and Air New Zealand has suspended its financial outlook due to fuel market uncertainty. From March 18, flights between Hong Kong and destinations like London will experience surcharge increases of up to 105%, while shorter flights such as Hong Kong to Singapore will see increases of over 100%.
The root cause is straightforward: jet fuel is generally airlines' biggest cost after labour, accounting for 20% of expenses or more. Tanker traffic through the Strait of Hormuz has come to a virtual halt, as Iran announced it would close the waterway that normally handles about 20% of the world's oil and liquified natural gas.
What makes this particularly brutal for travellers is the timing. Several US airline executives told analysts that travel demand remains strong, and because of airlines' upbeat outlooks on demand, "the environment is conducive for passing along fare increases". In other words, airlines can raise prices because people still want to travel.
The question now is how long the pressure persists. Analysts compare the Iran conflict's ripple effects to Russia's 2022 invasion of Ukraine; as long as the Strait of Hormuz is closed, prices will keep rising, and "if that were to persist, this would be like a 1979 kind of oil crisis," with "anything over a month" seeing "a substantial long-term price increase until the flows are restored".
Attempts to mitigate the impact face practical obstacles. While the US and other large economies can tap strategic oil reserves, this move might not bring a sharp drop in jet fuel prices because the US reserve focuses on holding crude oil, not jet fuel, and logistical challenges exist such as California's reliance on jet fuel it either produces or imports.
For Australian families planning summer travel, the message is blunt: Flight Centre Travel Group reports calls to its stores and emergency assistance lines have leapt 75 per cent since the crisis began, with teams working around the clock to help disrupted customers. Those who haven't booked yet face a difficult choice. Lock in tickets now at elevated prices, or wait and risk paying even more if the conflict drags on.