McKinsey warns jet fuel supply squeeze could lift airfares 20–25%

Airfares could rise by up to 25% as jet fuel costs surge, says McKinsey

Global jet fuel supplies are facing significant pressure due to geopolitical events and refinery limitations, according to McKinsey. This is driving up costs for airlines, with potential airfare hikes of 20-25% expected as fuel prices surge. Inventories remain low, and key exporting regions are restricting shipments, creating a challenging outlook for the summer travel season.

21 hours ago

Jet Fuel Supply Squeeze May Push Airfares Up 20–25%, Warns McKinsey Report

A combination of geopolitical disruptions and structural refinery constraints is tightening global jet fuel supply, increasing airline operating costs and potentially leading to higher airfares, according to a McKinsey report.The report notes that jet fuel demand is expected to rise ahead of the peak summer travel season, even as global inventories remain depleted. While crude oil price movements have already pushed fuel costs higher, additional pressure is coming from restricted supply, particularly from major Gulf-region and Asian exporters that together account for nearly 40% of global jet fuel output.This imbalance is reflected in the jet fuel “crack spread”—the difference between crude oil prices and refined jet fuel prices. Historically, this spread has remained around $20 per barrel or lower. However, McKinsey warns that in 2026, the average could exceed $50 per barrel, indicating a sharp increase in refining margins and structural cost pressures.Although a possible increase in tanker traffic through the Strait of Hormuz could provide some short-term relief by improving supply flows, the report cautions that volatility in jet fuel prices is likely to persist. This is because inventories need time to be replenished and supply chains require time to normalise.Indian Airlines Urge Refiners To Freeze Jet Fuel Prices For Domestic Flights The situation is further complicated by limited availability from Asia. Countries such as China, India, and South Korea have partially restricted exports following recent geopolitical tensions, reducing the potential for alternative supply sources. Other exporting regions may contribute additional volumes, but not enough to fully offset the shortfall.Refinery constraints are also a key factor. Many global refineries were already operating at high utilisation levels before the disruption, leaving little spare capacity to ramp up production. As a result, existing fuel inventories have been heavily relied upon to bridge the supply gap.Even if shipping routes stabilise, McKinsey expects jet fuel prices to remain elevated for several months due to ongoing restocking efforts and the rebuilding of strategic reserves. Higher refining margins are, however, encouraging refiners to increase output, which may gradually ease supply pressure over time.Since fuel typically accounts for around 30% of airline ticket prices, the report estimates that a doubling of fuel costs—assuming most of it is passed on to consumers—could translate into airfare increases of approximately 20% to 25%.

21 hours ago

Airfares may climb up to 25%: Report

New Delhi: Geopolitical disruption and refinery constraints are impacting jet fuel supply, which raises airline costs and could translate into higher crack spreads, thereby pushing airfares, according to a McKinsey report. Noting jet fuel demand is set to rise ahead of the summer travel season amid depleted inventories, the report highlighted fuel prices have surged mainly due to crude oil trends, while supply has been constrained airline ticket prices. According to the report, jet fuel prices have surged mainly due to crude oil trends, while supply has been constrained because of reduced refinery production from major Gulf-region and Asian jet fuel exporters (which together supply 40 per cent of the world's jet fuel). This second factor is reflected in the jet fuel "crack spread"--a measure of the difference in price between crude oil and the fuel products that are refined from it, the report said. Noting the historical prices, the report said the jet fuel crack spread has tended to linger around USD 20 per barrel or less, but in 2026, it could end up averaging more than USD 50 per barrel."In recent history, the jet fuel crack spread has tended to linger around $20 per barrel or less, but in 2026, it could end up averaging more than $50 per barrel," it said. While a "potential increase in tanker traffic through the Strait of Hormuz" could reduce immediate fuel price pressure, "jet fuel prices and crack spreads could remain volatile while inventories are rebuilt and supply chains normalise," McKinsey noted. In the near term, Asian countries are unlikely to bridge the gap, as China, India and South Korea have all moved to at least partially restrict exports following the geopolitical conflict. While other exporting regions may offer some relief, it is unlikely to be sufficient to offset the shortfall, the report noted. Furthermore, several global refineries were already operating at high utilisation levels before the conflict began, leaving little spare capacity to increase output further. The report further noted "existing inventories have been doing heavy lifting to bridge the supply gap." Accordingly, if tanker traffic in the Strait increases, jet fuel prices will likely fall. However, as countries may be restocking and extending strategic storage, jet fuel prices will likely stay "elevated for several months even after tanker traffic resumes to previous levels." Higher refining margins for jet fuel have prompted refiners to increase output, partly easing supply concerns, though prices may remain elevated for months amid ongoing restocking and strategic storage rebuilding. "Given that about 30 percent of the price of an airline ticket typically goes toward fuel costs, a doubling of fuel costs (with most passed through) could lead to fare increases of roughly 20 to 25 percent," the report added.

1 day ago