US jet fuel prices have passed US$200 a barrel for the first time since the conflict in the Middle East began in late February, adding pressure on airlines that have spent the year raising fares and trimming capacity to cover fuel costs.
The Argus US Jet Fuel Index put jet fuel at US$4.90 a gallon on 22 October, equivalent to US$206 a barrel. That is well above the US$152 a barrel average IATA assumed in June, when it halved its 2026 profit forecast for the global airline industry to US$23 billion. IATA expects the industry fuel bill to rise from US$252 billion in 2025 to US$350 billion this year, taking fuel from about a quarter to almost a third of airline operating costs.
On New Zealand routes, inbound demand has held up. International visitor arrivals reached 99 per cent of August 2019 levels in August, with Australia accounting for just over half. Capacity is still being added on some routes despite the cost pressure, with new services between Auckland and Western Sydney and between Christchurch and Singapore starting this week, and Christchurch services to Tokyo and Perth due at the end of November.
In the United States, the four largest carriers have all cut their 2026 earnings forecasts this month, despite each reporting record third quarter revenue. US airfares have risen by more than 20 per cent this year. A Reuters analysis found US carriers lifted passenger revenue by 18 per cent in the third quarter while carrying roughly the same number of passengers, meaning higher prices rather than more travellers drove the gain.
Fares have been the first lever, but they have limits. IATA estimates airlines are absorbing around half of the fuel increase rather than passing it all on, because recovering the full cost through fares would weaken demand. Beyond fares, airlines have three main levers: capacity, fleet and cost. Capacity cuts remove the least profitable flying, fleet changes put the most fuel efficient aircraft on the longest and most fuel intensive sectors, and cost programmes and supplier negotiations target the rest of the cost base. Fuel hedging offers some protection, but only for the share of fuel bought forward.
When fares stop covering fuel, capacity is where the pressure shows. US carriers have signalled they may need to limit flight growth next year to sustain higher fares, and one major US airline has already scaled back its 2027 network growth. Further increases are possible. John Gradek, an aviation risk management specialist at McGill University, expects jet fuel could reach US$225 a barrel by the end of December, which he said could force airlines to review routes and schedules.