Winning Bizness Desk

Mumbai.Air travel could become significantly more expensive in the coming months, with airfares likely to rise by as much as 25% as airlines grapple with soaring jet fuel costs triggered by geopolitical tensions and tightening global fuel supplies. A report by global consulting firm McKinsey says the combined impact of refinery constraints and disruptions in the global fuel supply chain has sharply increased airlines' operating costs, a burden that may soon be passed on to passengers. Fuel alone accounts for nearly 30% of the cost of an airline ticket, making it one of the biggest cost components for carriers. Recent signs of easing crude oil prices may offer some relief, but experts believe volatility in jet fuel prices is likely to continue until supply conditions improve.

Fuel costs emerge as biggest concern

According to the report, one of the key indicators driving airline costs is the jet fuel "crack spread"—the difference between crude oil prices and refined jet fuel prices. Historically, the crack spread has remained around $20 per barrel or lower. However, McKinsey estimates it could average more than $50 per barrel during 2026, substantially increasing fuel expenses for airlines.

Key highlights from the report include:

• Fuel accounts for around 30% of an airline ticket's total cost.
• Jet fuel crack spread may climb beyond $50 per barrel in 2026.
• Higher fuel costs could push airfares up by as much as 25%.
• Airlines are expected to pass part of the additional burden to passengers.

Refinery limits tighten global supply

The report attributes the surge in jet fuel prices to multiple global factors. Refinery production has declined across the Gulf region and major Asian economies, while geopolitical tensions have disrupted fuel exports. Together, these regions account for nearly 40% of global jet fuel supplies. Countries such as India, China and South Korea have also limited fuel exports to strengthen domestic reserves, putting additional pressure on international supply chains.

Major refineries worldwide were already operating close to full capacity before the latest disruptions, leaving little room to increase production. Existing inventories are currently being used extensively to bridge supply shortages, but analysts warn that these reserves cannot support demand indefinitely.

What could influence ticket prices?

Several developments will determine whether airlines can avoid steeper fare hikes:

• Restoration of normal tanker movement through the Strait of Hormuz.
• Rebuilding of strategic fuel reserves by major economies.
• Recovery in refinery output across key producing regions.
• Stabilization of global fuel supply chains.

McKinsey says the immediate pressure on prices could ease if tanker traffic through the Strait of Hormuz continues to improve. However, until strategic inventories are replenished and supply chains return to normal, fluctuations in jet fuel prices and crack spreads are expected to persist.

Crude oil drops but uncertainty remains

There is some positive news for airlines and travellers. International benchmark Brent crude recently fell to around $75.55 per barrel, its lowest level in nearly four months, after easing tensions in West Asia and the gradual resumption of tanker movements through the Strait of Hormuz. During the Iran conflict, Brent crude had surged to nearly $120 per barrel, meaning current prices are about 37% lower.

Even so, market experts caution that softer crude prices alone may not immediately reduce airline operating costs because refined jet fuel continues to face supply constraints. Demand for aviation fuel is expected to remain firm, while concerns over refinery capacity and production cuts could keep prices volatile despite the decline in crude oil.

What passengers should watch

Travellers planning domestic or international trips in the coming months should keep an eye on:

• Airline fare revisions during peak travel seasons.
• Changes in global oil and jet fuel prices.
• Developments in Middle East shipping routes.
• Airline announcements on fuel surcharges and ticket pricing.

Industry observers believe airfare trends over the next few months will largely depend on how quickly fuel supplies normalise and whether geopolitical tensions continue to ease. Until then, airlines are likely to remain cautious in pricing while managing one of their biggest operating expenses.