International oil prices experience huge fluctuations! With a revenue of 100 yuan, over 30 yuan is "eaten up" by jet fuel!

Middle East conflict risk continues to linger, keeping the global aviation industry on edge once again—amid extreme fluctuations in international oil prices, some airlines’ steady operating rhythms this year have been disrupted. A “stress test” arriving from the cost side has suddenly crashed into the middle of a geopolitical storm.

Recently, starting with Cathay Pacific, multiple airlines—both international and domestic—have successively raised fuel surcharges on international routes. 대응 strategies such as oil fuel hedging, cutting capacity, and pausing inefficient routes have also been rolled out in quick succession. Whether by controlling costs or shifting costs, under a range of competing tactics, airlines’ “cost-balance defense war” has already begun.

With pressure from the demand side and a shock from the cost side coming in tandem, airline bargaining power shows a certain degree of passivity. Some industry insiders worry that certain response strategies may also be difficult to fully deploy. How to walk steadily along a narrow “cost-balance plank” is testing the industry’s resolve and operational wisdom.

Image source: TuChong Creative

Aviation fuel “consumes” 30% of revenue

“Earlier too, we experienced the impact of international developments on costs, but I didn’t expect the oil price volatility this time to be so severe.” A person from a state-owned airline told Securities Times reporter, “During this period, we are mostly doing calculations on how Sinopec’s restructuring of China Aviation Oil might change our fuel costs. The sudden surge in international oil prices is clearly more lethal.”

Aviation fuel is the largest operating cost for airlines. According to 2024 financial report data, for Air China, China Eastern Airlines, and Southern Airlines, the proportion of aviation fuel in total costs is roughly around 34%–35%. In other words, for every 100 yuan in revenue an airline earns, about 34 yuan is “burned” into the fuel tank.

This cost structure makes airlines extremely sensitive to changes in oil prices. Air China’s 2025 semi-annual report previously disclosed that, with other variables kept unchanged, if the average aviation fuel price rises or falls by 5%, its fuel cost would correspondingly change by about 1.22B yuan. Since the Middle East conflict began, the international oil price has seen a peak increase of more than 50%, meaning airlines may face cost shocks at the level of billions of yuan.

According to estimates by Haitong Securities, if Brent crude oil rises from $60 per barrel to $100 per barrel, and the jet fuel spread widens from $20 per barrel to $40 per barrel, the price of aviation kerosene is expected to be adjusted upward by about 3,767 yuan per ton (+75%), with the cost increase accounting for 21.8% of the average shipping rate for the three major airlines.

Why do some airlines show more anxiety about this round of oil price volatility? The reason is that this round of oil price increases has structural characteristics.

In crude oil exported from the Persian Gulf, nearly 60% is medium and heavy crude—these are key feedstocks for producing aviation fuel. Substitutes from non-Middle Eastern origins available in the market are very limited. The aforementioned airline source believes, “The Middle East conflict’s impact on products such as aviation fuel and diesel is greater than on crude oil itself—even if crude oil prices pull back, aviation fuel may still remain at high levels.”

A related analyst at Morgan Stanley also pointed out that the risks facing airlines are not only crude oil price increases, but also the continually widening spread between crude oil benchmark prices and aviation fuel prices, which makes cost control a severe challenge.

Price hikes, hedging, and capacity adjustments—together

Amid the surge in costs, airlines have entered a coordinated price-hike mode, with both the scope of route coverage and the intensity of adjustments being substantial.

Raising fuel surcharges is the most direct approach. Starting with Cathay Pacific, multiple international and domestic airlines have already raised fuel surcharges on international routes, and in some routes, surcharges have even doubled.

For domestic routes, fuel surcharges are linked to jet fuel prices. The aforementioned airline source said that the next adjustment window for domestic route fuel surcharges is early April. “If international oil prices continue to stay high, there is a possibility of an increase.”

Civil aviation expert Wang Jia believes, “This shows airlines have the capability and tools for cost pass-through, but this pass-through ability has a ceiling. After all, what passengers pay is the comprehensive cost (ticket price plus fuel surcharge). If it becomes too high, it will affect people’s choices of travel tools and their willingness to travel. It’s not ruled out that some airlines, while raising surcharges, will lower base ticket prices.”

From industry practice, when demand conditions are strong and aviation fuel prices rise, airlines typically have strong capacity to absorb costs. When high oil prices coincide with weak demand, it usually leads to further expansion of industry losses. In the past few years, with the Russia-Ukraine conflict adding to delays in global refining and petrochemical production capacity recovery, Brent crude and Singapore jet fuel prices rose in tandem. Against a backdrop of weak demand, the year-on-year decline in passenger turnover volume for China’s three major airlines on domestic routes reached 40%. After stripping out fuel surcharges, base ticket prices did not rise but fell instead, resulting in deep industry losses, until only in the past two years did the industry slowly emerge from the predicament.

As of now, the industry’s overall expectations for demand growth remain optimistic. IATA predicts that by 2050, global air passenger demand will grow to more than twice the current scale. Under a moderate growth scenario, demand is expected to reach 20.8 trillion RPK (revenue passenger-kilometers), and the 2024–2050 CAGR (compound annual growth rate) will be 3.1%.

Willie Walsh, Chairman of the IATA Board of Governors, said: “The outlook for air travel is generally positive overall, which is meaningful and positive for global economic and social development—growth in aviation will bring opportunities in many areas worldwide, including jobs.”

Multiple airlines are also looking to make financial instruments work. In January this year, the board of China Eastern Airlines passed a resolution to carry out fuel oil hedging business in 2026; exchange rates and jet fuel are the two major categories for hedging management. Cathay Pacific previously disclosed that around 30% of fuel in 2026 has already been hedged. Finnair’s hedging ratio in Q1 was even above 80%, showing that domestic and international airlines are trying to lock in costs and smooth cyclical volatility through financial derivatives.

In terms of routes, “making cuts” has also become a new move for many airlines. United Airlines recently announced that, to respond to potential high oil prices lasting through the end of 2027, it will cut about 5% of capacity in the second and third quarters and concentrate resources in high-profit markets.

Wang Jia said that when oil prices remain above $100 per barrel for the long term, for airlines, simple financial hedging is often insufficient to deal with cost risks, making capacity adjustments more necessary. If international oil prices remain persistently high, it is not ruled out that more aggressive capacity-focused strategies may be introduced.

Finding balance in the “stress test”

A sharp rise in oil prices often lifts the stock prices of electric vehicle companies represented by BYD. Similarly, the aviation industry consensus is that high oil-price cycles will accelerate the aviation industry’s green transition.

In the 2026 Government Work Report, for the first time, China listed “green fuels” as a new growth driver. This is seen as an important impetus for the development of SAF (sustainable aviation fuel). “SAF not only promotes energy saving and emissions reduction, but also reduces China’s civil aviation dependence on imported fuel. Increasing the application ratio of SAF will be the inevitable path for the aviation industry to reshape its cost structure and get rid of reliance on fossil fuels.” Wang Jia believes.

But in the short term, the highlights of niche segments cannot outweigh the industry-wide anxiety.

Since last year, China’s civil aviation industry has rebounded noticeably overall, with total industry transport turnover increasing. State-owned airlines have reduced losses significantly; among them, China Southern Airlines was the first to achieve full-year turnaround to profit, with expected attributable net profit of between 800 million and 1.0 billion yuan. But facing the oil price shock in 2026, this warmth has been disturbed.

At present, most airlines have not yet released their annual reports. Wang Jia analyzed: “In last year’s airline operations, segments such as air cargo transport, airport services, and aviation fuel and materials all provided important support. When high oil prices coincide with fluctuations in passenger demand, airlines’ cost pressure is likely to become more prominent.”

Wang Jia categorizes airlines’ responses to the oil price shock into four types: fuel surcharges are the price signal at the front end; hedging is the financial tool at the mid end; capacity adjustments are operational strategies at the back end; and the green transition is a long-term strategic layout. “No single measure can solve all problems independently, but when combined, they form airlines’ complete line of defense against high oil prices.”

However, airlines in the midst of a cost game feel that this balance plank is not easy to walk on. The aforementioned state-owned airline source gave examples: raising surcharges may suppress demand; hedging may lead to losses; cutting capacity may mean losing market share; and a green transition may increase short-term costs.

“For crude oil producers or upstream companies, hedging is beneficial for locking in future selling prices. But for airlines, on the demand side, it’s a different consideration. Recently, after some airlines hedged, crude oil prices fell rapidly. This means the actual procurement cost is higher than the current market price, and hedging instead increases opportunity cost. Historically, there are no lack of such lessons.” he said.

Industry consensus is that airlines need to find a new balance in this “stress test.” Taking China Eastern Airlines as an example, during hedging operations the company set mandatory stop-loss lines, and the working group tracked changes in fair value and risk exposure in a timely manner. Moderate participation and strict risk control reflect the cautious posture of airlines in a highly volatile market.

In Wang Jia’s view, this also reflects airlines’ exploration in more refined operations. “In recent years, airlines have been shifting from extensive expansion to more refined operations, and many capacity adjustments follow an approach of ‘with protection and with pressure.’ This cost-side shock will push airlines to further accelerate their move toward refined operations.”

In the spring of 2026, the waves in the Strait of Hormuz have not yet fully calmed, oil prices are still experiencing major shocks at high levels, and the spillover effects on airlines will continue to show. Airlines may roll out more response moves. “No choice—it’s both a survival necessity and a required path for industry upgrading and competition.” the aforementioned airline source said.

Source: e-company

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Editors: Lin Lifeng