An 80% increase in aircraft fuel costs is driving up travel prices and putting pressure on airline earnings. A shadow hangs over the sector as TAP's sale process gets underway.
Rising oil prices and the blockade of the Strait of Hormuz are causing jet fuel prices to skyrocket, leading to higher ticket prices and threatening the results of airlines, including TAP.
The price of kerosene, which powers aircraft, has risen by more than 80% since the beginning of the year, with a particular impact in the last week as a result of the conflict in the Middle East triggered by the US and Israeli attack on Iran.
The price is being driven by the rise in the price of crude oil, but above all by the region’s dependence on jet fuel supplies, which have been disrupted by the blockade of the Strait of Hormuz. According to S&P Global, the Persian Gulf countries accounted for 50% of Western European and Mediterranean imports in 2025.
“The escalation of geopolitical tensions — initially in Venezuela and, more recently, in the Middle East, with the US military intervention in Iran — has significantly boosted oil prices, both Brent and WTI, with a direct impact on refined product markets, including jet fuel”, financial analyst Nuno Barradas Esteves told ECO.
“The price of jet fuel has risen by 82%, from 623 to 1,132 dollars per tonne on 9 March 2026, reaching its highest level since February 2023 — the highest in the last three years”, he adds.
The higher cost of fuel is one of the factors already leading to an increase in airfares. “Jet fuel accounts for between 25% and 30% of an airline’s operating costs. It can only have an impact on the final price”, says Miguel Quintas, president of the National Association of Travel Agencies. He says he cannot quantify a percentage, but describes “a general increase”.
Ticket prices are also being driven up by the disruption of air transport at the main airports in the Persian Gulf – Dubai, Abu Dhabi and Doha, which handle around 200 million passengers annually – and the “saturation of alternative routes” to Asia, in particular the so-called ‘central corridor’.
With more expensive tickets, the president of the National Association of Travel Agencies anticipates an impact on demand. “Without a doubt. The tourism market is very sensitive to price”, says Miguel Quintas, who expects a greater decline in family travel than in business travel, whose market “is more elastic”.
TAP’s accounts threatened in the midst of privatisation
This context is casting a shadow over airline accounts, which the Portuguese flag carrier, currently undergoing privatisation, will not escape. “For airlines such as TAP, the rise in crude oil prices translates into a direct increase in their main operating cost item — fuel — which, until September, cost €746 million and accounted for 24% of operating costs”, says Nuno Barradas Esteves.
“Even if competition limits the full transfer to the fares charged, the result will be more expensive air tickets and a consequent decline in demand, with the national airline being doubly penalised”, adds the financial analyst who follows the aviation sector.
Airlines use financial contracts to protect fuel purchases from price increases, known as hedging. Protection is never total, not least because contracts have to be renewed, but TAP is clearly more exposed than the main European aviation groups. The Portuguese carrier’s coverage was 42% of total jet fuel in 2025, much lower than Air France-KLM’s 87%.
“With TAP having a lower level of hedging than its competitors, it will also be the first to suffer from this price escalation”, stresses Nuno Barradas Esteves. The financial analyst even calculates that “each 10% increase in the price of jet fuel can increase TAP’s annual costs by approximately €58 million”. ECO sent questions to the Portuguese carrier but did not receive a response by the time this article was published.
TAP’s operating costs have been rising in recent years, mainly due to increased personnel and traffic operating costs. However, this trend has been offset by a reduction in jet fuel costs, which fell by 6.2% in 2024 and 7.8% in the first nine months of 2025, according to figures compiled by Nuno Barradas Esteves from reports and accounts. If this trend is reversed, it could jeopardise the positive operating results achieved in recent years.
“It should be noted that the operating result was €383 million in 2024 and €227 million up to September 2025, figures that could quickly be exhausted by such a sharp rise in the cost of jet fuel, with potential repercussions in higher fares and a decline in demand for air travel”, points out the financial analyst.
The possible negative impact on profitability comes at a delicate time for the Portuguese airline. Those interested in privatisation have until 2 April to submit non-binding offers, followed by the binding offer phase, in a process that the government intends to conclude around July.
“With TAP in the process of being sold, a deterioration in profitability — or even the possible presentation of losses — could put downward pressure on its valuation, while making potential buyers more cautious about making a large investment in such an adverse economic context”, says Nuno Barradas Esteves.
The war in the Middle East and the rise in oil prices to over $100 caused sharp declines in the aviation sector on Monday, from Europe to Asia, adding to the losses that had already occurred the previous week. Air New Zealand shares fell more than 9% and Korean Air Lines shares fell 8.5%, while in Europe Lufthansa fell 6.38% and Air France-KLM fell 3.87%.
Investors’ risk aversion was also felt in bond prices, with sharp declines leading to a corresponding rise in implied interest rates. This was the case for TAP bonds maturing in 2029, where the interest rate demanded by investors jumped almost 80 basis points in eight sessions to 4.696%.
The US President’s initiatives to try to reduce the price of energy goods – which included a conversation with Vladimir Putin about lifting sanctions and an interview with CBS News in which he said that “the war is practically over” – lowered the price of oil and raised the share price of United Airlines and American Airlines on Monday night.
But uncertainty remains, and the duration of the conflict will dictate whether or not we are facing a new aviation crisis. “If the four-week scenario outlined by the US President is confirmed, the impact will be significant but potentially manageable and likely to be partially accommodated over the course of the year”, predicts Nuno Barradas Esteves. If it drags on with no end in sight, “there could be serious consequences for the aviation sector and the national economy, with the risk of a further increase in inflation, rising interest rates and a consequent decline in consumption and investment”.
