Airfare may rise by up to 25% in 2026 as fuel costs double: Report | Today’s news
Geopolitical disruptions and refinery restrictions are impacting jet fuel supplies, increasing airline costs and could translate into a higher crack spread, pushing up airfares, according to the McKinsey report.
Pointing to demand for jet fuel ahead of the summer travel season amid depleted supplies, the report highlighted that fuel prices rose mainly due to oil trends, while supply was constrained by airfares.
According to the report, jet fuel prices rose mainly due to oil trends, while supplies were constrained due to reduced refinery output from major jet fuel exporters in the Persian Gulf region and Asian exporters (which together supply 40 percent of the world’s jet fuel).
That second factor is reflected in jet fuel’s “crack spread” — a measure of the difference in price between crude oil and the fuel products that are refined from it, the report said.
Looking at historical prices, the report says jet fuel crack spreads tend to stay around $20 a barrel or less, but could end up averaging more than $50 a barrel in 2026.
“In recent history, the crack spread for jet fuel has hovered around $20 a barrel or less, but could end up averaging more than $50 a barrel in 2026,” the company said.
While “a potential increase in tanker traffic through the Strait of Hormuz” could reduce immediate pressure on fuel prices, “jet fuel prices and crack spreads could remain volatile while inventories rebuild and supply chains normalize,” McKinsey noted.
Asian countries are unlikely to close the gap in the near future, as China, India and South Korea have moved to at least partially curb exports following geopolitical conflict. While other exporting regions may offer some relief, it is unlikely to be enough to offset the shortfall, the report said.
In addition, several global refineries were operating at high levels of utilization even before the outbreak of the conflict, leaving little spare capacity for further increases in production.
The report went on to say that “existing inventories have been lifting heavily to bridge the supply gap.”
So if tanker traffic in the strait increases, jet fuel prices are likely to fall. However, as countries can replenish stocks and expand strategic storage facilities, jet fuel prices are likely to remain “elevated for several months even after tanker traffic returns to previous levels.”
Higher refinery margins on jet fuel prompted refiners to increase production, partially easing supply concerns, although prices may remain elevated for months due to ongoing restocking and rebuilding of strategic warehouses.
“Given that approximately 30 percent of the cost of a ticket typically goes to fuel costs, doubling fuel costs (which most will pass through) could result in an increase in fares of around 20 to 25 percent,” the report added.
