Sharply elevated fuel prices caused by the Iran war have the potential to wipe out anticipated U.S. airline profits in 2026 and send airfares rising, while taking a particularly heavy toll on already weakened discount carriers.
Some global airlines have already announced fare hikes to counter higher costs. However, the pricing power of carriers both domestically and abroad could be eroded by weakened consumer demand, especially if high energy prices cause broad damage to the global and U.S. economies, analysts say.
Ten days into the war, U.S. jet fuel prices were up 45% on average, amounting to an extra $1.17 per gallon, according to the Argus U.S. jet fuel index.
With fuel accounting for around a quarter of airline costs, the sudden price increase is certain to dent bottom lines in March since the price surge wasn't built into tickets sold before the war began on Feb. 28.
How bad will things get through the spring and beyond? That depends on how long the war lasts and how long the Strait of Hormuz remains closed. About 20% of the world's oil supply is transported through the strait, according to the U.S. Energy Information Administration.
In an investment note, Deutsche Bank financial analyst Michael Linenberg wrote that fare increases of $10 on average could counter $8 billion in extra fuel costs. Still, projected industry profits for the year could be erased if high jet fuel prices persist long enough.
Operating margins at the weaker-performing carriers, including American, JetBlue and Frontier, would take the biggest hits.
"Absent near-term relief, airlines around the world could be forced to ground thousands of aircraft while some of the industry's financially weakest carriers could halt operations," he wrote.
In a subsequent interview, Linenberg said that airlines would look at retiring older, less efficient aircraft if fuel prices stay high, because the flight economics of marginal routes would shift into negative territory.
He was hesitant to discuss specific airlines that could go under, but Spirit, which recently announced its intent to emerge from bankruptcy in late spring or early summer, is an obvious candidate.
Also, low-cost carriers absorb a relatively larger impact from fuel hikes than full-service carriers because fuel comprises a slightly higher percentage of their total costs. Plus, discount carriers will be hard-pressed to implement fare hikes on their price-sensitive customers.
Linenberg said full-service airlines should be more successful passing on higher costs to their customers -- business travelers, for example. But if high energy prices and the war persist, damaging the economy broadly, business travel will decline.
Already, global carriers such as Qantas, Air New Zealand and Scandinavian (SAS) have announced fare hikes to counter higher fuel costs.
Scott Keyes, founder of bargain flight subscription service Going, predicted that U.S. carriers will mostly take a wait-and-see approach to fare hikes, because airlines are aware of their limited pricing power.
"In a market economy, airlines can only charge what consumers are willing to pay," Keyes said.
Still, he said that fare increases followed the two most recent instances in which fuel prices jumped steeply and quickly: after Russia attacked Ukraine in 2022 and shortly before the Great Recession in 2008.
What happens next depends on whether President Trump pushes forward with the war or ceases the fight.
"I don't think there is any reality where this leads to cheaper fares. But so much of what is going to happen is in the mind of one man," Keyes said.
Cruise lines and tour
Unlike U.S. airlines, which have largely stopped fuel hedging, Norwegian Cruise Line Holdings and Royal Caribbean Group employ the strategy, locking in prices before a rise in fuel costs. Viking said it has fixed-price fuel contracts, particularly for its river cruise fleet. But Carnival Corp. doesn't hedge, making it more vulnerable to cost fluctuations.
Cruise lines have the option of passing along costs with daily fuel surcharges, but they risk customer dissatisfaction and cruise cancellations if they do it, said Deutsche Bank research analyst Chris Woronka.
Surcharges are rarely used for just a week or two, so cruise lines are likely waiting to see if circumstances change before implementing them, he said.
Liquid natural gas (LNG) has not been adopted widely enough by the cruise industry to offer relief, Woronka said.
"I think everybody's waiting for the day when a majority of the fleets are powered by LNG and maybe less tethered to the crude market," he said. "But we're just not there yet."
Tour operators that rely on motorcoaches will have higher costs that could be passed down to consumers. Even if a customer booked a guided tour months ago, they may still have to pay a surcharge, said Ryan Sanders, owner and president of Trips Unlimited and director of operators for Motor Coach Family of Brands.
"Many motorcoach companies include provisions in their terms and conditions allowing for a fuel surcharge if prices rise above a certain level," he said.
Teri West and Brinley Hineman contributed to this report.