Iran War Costs Force Airlines to Cut Thousands of Flights and Retailers to Raise Prices

In the ten weeks since the United States and Israel launched military operations against Iran on February 28, 2026, the price of jet fuel in the U.S. has climbed from $2.50 per gallon to $4.56 — an 82% increase that has ripped through the global aviation industry and begun spilling into consumer retail prices [1]. Airlines have cancelled at least 13,000 flights in May, cut 9.3 million seats from summer schedules, and one carrier — Spirit Airlines — has ceased to exist entirely [2][3]. On the retail side, British fashion and homewares chain Next announced price hikes of up to 8% for customers outside Europe, citing tens of millions of pounds in war-related costs [4].

The common thread is the Strait of Hormuz, through which roughly 20% of the world's oil supply once flowed freely. Its effective closure has produced what the International Energy Agency calls "the largest supply disruption in the history of the global oil market" [5].

Source: NPR / EIA

Data as of May 5, 2026CSV

The Fuel Shock: How $2.50 Became $4.56

Jet fuel — known commercially as Jet-A1 — is derived from crude oil and moves closely with global petroleum benchmarks. Before the war began, U.S. jet fuel averaged around $2.50 per gallon [1]. By early May, that figure had reached $4.56, a jump of roughly $2.06 per gallon [1].

Brent crude crossed $100 per barrel on March 8 for the first time in four years and peaked at $126 per barrel [5]. For context, the 2022 Russia-Ukraine invasion pushed Brent to $128, and the 2008 financial crisis spike hit $147 [6][7]. In raw barrel terms, the 2026 shock has not yet matched those peaks. But the speed of the jet fuel increase — 82% in roughly ten weeks — is sharper than what carriers experienced during the Russia-Ukraine crisis, when jet fuel rose approximately 96% over a full year from already-depressed pandemic-era baselines [6].

Source: EIA / Bloomberg

Data as of May 5, 2026CSV

The difference this time is supply. In 2022, Russian oil largely found alternative buyers in India and China, keeping global volumes relatively stable. The Hormuz closure has physically removed supply from the market. Iran, Iraq, Kuwait, Saudi Arabia, Qatar, and the UAE all depend on the strait for exports [8]. The disruption has created not just a price problem but a physical scarcity problem, particularly for jet fuel — a narrower refinery product that is harder to substitute than gasoline or diesel [9].

13,000 Flights and Counting: Where the Cuts Are Falling

The 13,000 cancelled flights in May represent only the latest wave. In the war's first days, more than 21,300 flights were cancelled at seven major Middle Eastern airports including Dubai, Doha, and Abu Dhabi [10]. Qatar Airways alone cancelled 4,929 flights — 89% of its schedule — between February 28 and March 24 [10].

The ongoing cuts extend well beyond the Middle East. Lufthansa has eliminated 20,000 short-haul flights through October, permanently grounding its 27-aircraft CityLine subsidiary fleet [11]. The cuts concentrate on less profitable routes, with remaining capacity focused on the group's six hub airports in Frankfurt, Munich, Vienna, Zurich, Brussels, and Stockholm [11]. Turkish Airlines has made major reductions at Istanbul, cancelling flights to and from Bahrain, Saudi Arabia, Iran, Iraq, Jordan, Kuwait, Lebanon, Oman, Qatar, Syria, and the UAE [10].

Source: Cirium / Euronews

Data as of May 5, 2026CSV

In North America, United Airlines has cut roughly 5% of planned flights, with reductions confirmed for May and June and further summer cuts under review [12]. Air Canada has dropped routes between Toronto/Montreal and New York JFK from June 1 through October 25, stating plainly that "jet fuel prices have doubled since the start of the Iran conflict and some lower profitability routes and flights are no longer economic" [12].

Routes between Europe and Asia that previously transited Iranian airspace now divert over Central Asia or the Arabian Sea, adding two to five hours of flight time and corresponding fuel costs [10]. The two million seats cut in May alone translate directly into displaced passengers, though precise global passenger counts remain difficult to aggregate across carriers.

Spirit Airlines: The First Corporate Casualty

On May 2, Spirit Airlines permanently ceased operations after 34 years, leaving 17,000 employees without jobs [3][13]. The airline had been financially distressed for years — it emerged from Chapter 11 bankruptcy only months earlier — but its restructuring plan assumed jet fuel costs of about $2.24 per gallon in 2026 [13]. When prices more than doubled that assumption, the carrier ran out of options.

Spirit's collapse is the starkest illustration of how the fuel crisis is hitting budget carriers disproportionately. Low-cost airlines operate on thin margins, high aircraft utilization, and high passenger volumes. They have less room to absorb fuel shocks and fewer premium passengers willing to pay surcharges [14]. Transportation Secretary Sean Duffy disputed that the war caused Spirit's failure, calling it a company that "was going out of business already" [15]. But Spirit's own lawyers told the court that the fuel price surge left the carrier with "no remaining way out" [16].

The pattern is repeating internationally. Bloomberg reported that Asia's discount carriers — AirAsia X, Lion Air, Cebu Pacific — face similar risks [14]. Vietnam Airlines suspended its Hanoi-Auckland service due to fuel shortages, and VietJet cut domestic routes as Vietnam, which imports more than two-thirds of its jet fuel, hit a supply crunch [14]. South Korean budget carrier Jeju Air cancelled 110 international flights on routes from Incheon to Hanoi, Bangkok, and Singapore [17]. Georgian Airways has warned it faces bankruptcy [18].

Next's 8% Price Hike: Anatomy of a Cost Pass-Through

British retailer Next's announcement that it would raise prices by up to 8% in markets outside Europe drew immediate attention as an example of the war's reach into everyday consumer prices [4]. The company's estimated Iran-related costs have tripled since March — from an initial £15 million estimate to approximately £45 million [4][19].

The cost mechanism is multi-layered. Next sources goods from factories across Asia — primarily China, Bangladesh, Sri Lanka, and India. Those goods travel by container ship through routes that have been disrupted by the Hormuz crisis, and then require distribution within the UK and other markets using fuel whose price has surged [4]. The company faces higher transport costs for international shipping, elevated energy prices for warehousing and operations, and rising factory-gate prices as suppliers pass on their own increased costs [19].

Container shipping surcharges provide a concrete picture of the freight cost increase. Hapag-Lloyd levies a War Risk Surcharge of $1,500 per twenty-foot equivalent unit (TEU), while CMA CGM charges $2,000 per 20-foot dry container and up to $4,000 for refrigerated or special equipment [20]. War risk insurance premiums for vessels transiting the strait have surged from around 0.25% to between 2% and 6% of ship value — an increase of roughly 800% to 2,300% from pre-war levels [20][21].

Why Europe Gets a Pass

Next's decision to hold UK and European prices steady while raising them elsewhere is deliberate. The company said that increased costs in the UK would be offset by "cost savings and margin gains" through better factory-gate prices, and it does not expect to raise UK prices by more than the 0.6% it forecast at the beginning of the year [19].

This is partly a function of scale: the UK and Europe represent Next's largest markets, where it has the greatest negotiating power with suppliers and the deepest currency hedging positions. But it also reflects a strategic calculation. European consumers are the core of Next's business, and absorbing costs there — while passing them through in smaller, more price-insensitive markets — protects the revenue base that supports the company's stock price and growth narrative.

The effect is that customers in markets like the Middle East, Asia, and Africa bear a disproportionate share of war-related cost increases, even though many of those consumers have lower average incomes than their European counterparts.

The Opportunism Question

A recurring criticism in industry analysis is that some companies are using the Iran conflict to accelerate commercially motivated decisions they were already planning. The case is strongest for airlines.

Lufthansa's CityLine grounding, for instance, coincided with ongoing labor disputes at the subsidiary [11]. The fuel crisis provided economic justification and public cover for a fleet rationalization that had operational motivations beyond fuel costs alone. United Airlines' 5% capacity reduction and Air Canada's JFK route cuts targeted lower-profitability flying that was under commercial pressure even at $2.50-per-gallon fuel [12].

Southwest Airlines presents perhaps the most striking case. The carrier ended its fuel hedging program in early 2026 as part of a broader cost-cutting initiative — and jet fuel prices roughly doubled within weeks of the program's termination [12]. Whether this reflects spectacularly bad timing or an institutional expectation that hedging costs exceeded their expected benefit is an open question, but the result is that Southwest now faces the full unhedged impact of the price spike.

For carriers that did hedge — Cathay Pacific, for example, maintains coverage through Q2 2027, though only on about 30% of its fuel consumption — the crisis validates years of paying premiums that shareholders and analysts had questioned [12]. The gap between hedged and unhedged carriers is now a material factor in which airlines can sustain current service levels and which cannot.

On the retail side, the opportunism argument is harder to sustain for Next specifically. The company has a track record of granular cost disclosure, and its differentiated pricing approach — absorbing costs in core markets, passing them through in peripheral ones — is consistent with standard retail margin management, not war profiteering.

How Long Does This Last?

Energy analysts and shipping economists broadly outline three scenarios [5][22]:

Short conflict (resolution within 3-6 months): A reopening of the Strait of Hormuz would trigger an immediate $10-$20 drop in crude prices due to speculative unwinding. But supply chain bottlenecks, infrastructure damage, and lingering production outages would keep the market tight, likely anchoring Brent in the $80-$90 range rather than returning to pre-crisis levels around $70 [22].

Prolonged war (6-18 months): Continued Hormuz disruption keeps Brent above $100 and potentially pushes it back toward $126 or higher as strategic petroleum reserves deplete. Airlines would need to make further schedule cuts, and additional carrier failures become likely — particularly among Asian budget airlines and smaller regional operators [14][22].

Full, sustained Hormuz closure: The Dallas Federal Reserve estimated that a complete removal of Hormuz transit oil during Q2 2026 alone would push WTI prices to $98 per barrel [23]. Wall Street analysts have modeled scenarios where sustained closure drives oil toward $200 per barrel [5]. At that level, the airline industry would face a crisis comparable to 2008, when 25 airlines went bankrupt in six months [7].

Source: FRED / Bureau of Labor Statistics

Data as of Mar 1, 2026CSV

The U.S. Consumer Price Index rose to 330.29 in March 2026, up 3.3% year-over-year, with the full impact of the fuel shock still working through the economy [24]. If the conflict persists through summer, further waves of flight cuts and retail price increases become arithmetically unavoidable as hedging contracts expire and inventory purchased at pre-war prices is depleted.

Who Bears the Burden

The distributional effects of the crisis are sharply unequal. Budget carriers — which serve price-sensitive passengers who have fewer alternatives — are absorbing the worst of the flight cuts and facing the highest risk of failure [3][14]. Premium carriers and business-class routes, which generate higher per-seat revenue, remain commercially viable at elevated fuel prices and are being protected in airline schedule optimization.

In developing economies, the impact compounds. Vietnam's jet fuel import dependency left it acutely exposed to the supply crunch [14]. South Korea's low-cost carriers — not the full-service Korean Air — made the deepest cuts [17]. The pattern extends to retail: Next's decision to hold European prices steady while raising them by up to 8% in other markets means that consumers in less wealthy regions pay more for the same products [4].

Airport-dependent employment is another pressure point. Spirit Airlines' shutdown eliminated 17,000 jobs directly [13]. Lufthansa CityLine's grounding displaced its workforce and reduced feeder traffic to smaller regional airports. The Euronews estimate of two million lost seats in May alone implies reduced demand for airport services — ground handling, catering, retail — at hubs experiencing the steepest capacity reductions, particularly Istanbul, Munich, Dubai, and Doha [2][10].

The broader economic picture is one where the costs of a geopolitical conflict in the Persian Gulf are being distributed along predictable lines: lower-income consumers, developing-world markets, budget carriers, and economy-class passengers are absorbing a disproportionate share of the shock, while premium customers, hedged carriers, and European retail markets are partially insulated by financial engineering and strategic pricing decisions.