Susannah Streeter, chief investment strategist at Wealth Club, said: “Higher ticket prices for holidaymakers are looking increasingly unavoidable as airlines grapple with the fallout from surging energy prices as the Middle East conflict remains without resolution.
“With Brent crude edging back towards $107 a barrel, the pressure building on carriers is unlikely to ease any time soon.
“The warning from Willie Walsh, head of the International Air Transport Association, underlines the tricky balancing act airlines now face.
“Some carriers have cut fares in recent months to help stimulate patchy demand as some tourists took fright from booking trips, but there is only so long margins can withstand these elevated jet fuel costs.
“The conflict with Iran has injected a hefty dose of geopolitical risk premium into oil markets and this is not going to fade any time soon.
“With relations between Tehran and Washington still deeply fractious, traders are increasingly pricing in the possibility of prolonged disruption in the region.
“Given that the Strait of Hormuz remains one of the world’s most strategically important energy arteries, sustained instability threatens not only crude supplies but also the flow of jet fuel.
“Even if the route were reopened imminently, the knock-on effects on shipping, insurance and fuel logistics are expected to linger well into next year.
“Airlines are especially vulnerable because fuel remains one of their biggest operating costs, often accounting for around a third of expenditure.
“European carriers are particularly exposed given slower consumer demand in some markets and mounting regulatory costs tied to sustainability targets.
“If airfares are higher, it may also have an impact on in-flight spending with passengers less likely to splash the cash on food, treats and duty-free goodies, if their overall holiday is more expensive.
“However, there is a glimmer of good news for holidaymakers anxious about trips being cancelled. The average global jet fuel price fell by 10.1 per cent in the week ending May 8 compared to the week before – the biggest drop since the conflict began.
“The new level of $163 per barrel is the lowest the price has been since mid-March and is down 22 per cent from a peak of $209 at the start of April.
“We appear to be out of the immediate danger zone of further mass cancellations, and this is likely to reassure travellers, who until now may have been holding off from booking trips.
“The closure of the Strait of Hormuz triggered contingency plans with European and UK refineries switching to ‘max jet mode’ prioritising fuel production for the airline industry over other refined products.
“This, in addition to increased shipments from the US Gulf Coast and exporters such as Nigeria, appear to have done the trick of reassuring markets that there won’t be an immediate fuel shortage crisis.”
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