US-Iran conflict and jet fuel spike: What it means for airfares

Airlines take a variety of approaches to prepare for volatility of the sort now blowing up the Middle East.

With Iran attacking airports and threatening to halt trade through the Strait of Hormuz chokepoint, travellers might wonder how fares and airlines will be impacted.

Andy Bowley, head of research at Forsyth Barr, said Air New Zealand hedged to protect itself from oil price turmoil.

“If you go back to the half-year results, they provide in those results a simplified version of their current hedging profile,” he said.

“They typically hedge Brent crude, Brent crude being a proxy for jet fuel prices by and large through a cycle that is a reasonably effective way of hedging the next six-12 months.”

He said for Air NZ, that was a reasonable amount of time.

“Most of your fuel needs are on long haul. Long haul has much longer booking cycles.”

Long haul travellers typically booked further in advance than short-haul travellers so that kind of hedging effectively matched customer booking profiles.

That helped lock in fare pricing and absorb some volatility.

But some airlines did not hedge at all.

He said major Middle Eastern airlines often did not hedge, typically those whose owners included governments which printed money courtesy of big oil reserves.

It cost money to produce jet fuel from Brent crude, and the refining margin was reflected in what was called the crack spread.

Bowley said at rare times, jet fuel could be cheaper than Brent crude but typically it was US$10-$25 ($16.60-$41.50) higher.

He said Air NZ typically did not hedge for the crack spread but had entered into some opportunistic Singapore jet fuel price swaps.

Swaps are derivatives, or synthetic financial instruments, and are effectively bets on where the price will go.

Air NZ last week said it had hedged 3.45m barrels for the second half of the 2026 financial year.

War and prices

If history is a guide, jet fuel prices did go up slightly in June last year, around the time of the 12-Day War in the Middle East.

But apart from that spike, prices had been largely falling or stable since mid-2024.

For most of the past decade the crack spread was well below US$10 ($16.60) but in early 2022 it shot up after Russia invaded Ukraine.

The International Air Transport Association (Iata) said the spread even moved above US$60 ($99.60) at some points that year.

“A number of factors contributed to the wider crack spread, including the demand for other middle distillate fuels such as diesel, and a lack of infrastructure investment.”

Middle distillates come from a boiling range about 180C–360C during crude oil distillation, between lighter products such as petrol and heavier ones such as marine oil.

Iata said apart from hedging, airlines could use more fuel-efficient aircraft to limit the impact of higher oil prices.

Iata said jet fuel prices were up even before the current Iran-Israel-US war, up 2.2% to US$95.95 ($159.28) in the week to February 20.

The crack spread at that time was US$24.48 ($40.63), when Brent was US$71.47 ($118.64).

Brent crude early this afternoon was at US$78.27 ($129.92), having its biggest daily jump on Sunday since June last year.

Airports call for solidarity after attacks

Iran has attacked airports in the United Arab Emirates at Abu Dhabi and Dubai, one of the world’s busiest hubs.

The Airports Council International (ACI) today called on governments in affected countries to extend all possible support to airports and protect airport personnel, passengers and facilities.

“We stand in solidarity with our colleagues at airports across the region, who in the face of uncertainty and operational pressure, continue to respond with professionalism and compassion to support affected passengers, airlines, personnel and communities.”

It added: “We reiterate that airports are like any other civilian infrastructure and must never be targets of military action”.

The Wall Street Journal said Iran was hitting commercial hubs as part of a strategy to build pressure to end the war.

Iran has also reportedly targeted airports in Bahrain and Kuwait.

CNBC reported almost 750 flights out of the UAE were cancelled on Sunday.

That equated to 70.5% of all flights from that country.

From Qatar, 86.1% were cancelled and from Bahrain 92.4% were cancelled, while 74.7% from Israel were cancelled.

Emirates and Qatar Airways are the only airlines flying direct from Auckland to any of these destinations.

A Qatar Airways 777 was parked at Auckland Airport today, as were two Emirates A380s, the world’s biggest passenger aircraft.

Overnight, Emirates said due to multiple regional airspace closures, it was suspending all operations to and from Dubai, up until 3pm UAE time today, which is midnight NZ time.

It said people booked to travel before this Thursday, or on Thursday, should rebook.

“You can rebook on another flight to your intended destination up to 20 days from your original date of travel,” the airline said on social media.

“If you booked your flight with a travel agent, please contact them.”

Emirates said it was actively monitoring the situation and engaging with relevant authorities.

The airline said people who had booked flights with it directly could request refunds on its website.

John Weekes is a business journalist covering aviation and court. He has previously covered consumer affairs, crime, politics and courts.