Oil has had a dramatic fortnight. Brent crude is down about 22% from a late October peak above $117 a barrel and was trading near $92 on Tuesday. Hopes that the eight month conflict involving Iran could end have grown since the US midterm elections, helped by Donald Trump’s comment that further strikes would be “highly unlikely” if a strong agreement is reached.
Airline investors reacted immediately. On 4 November, as US crude fell more than 8% in a day, JetBlue shares jumped 14%, United gained 8%, and American and Delta each rose 7%.
Passengers hoping for cheaper flights should not get excited yet. Three forces will keep fares high well into next year, and in Europe the most important of them has not fully kicked in.
Jet Fuel Is Not Crude Oil
Airlines do not burn Brent. They burn jet fuel, a refined product, and refined product markets remain much tighter than crude.
Crude flows have almost returned to their levels before the war, but supplies of refined products are still constrained, according to Saxo’s market note on Tuesday. European diesel, a close relative of jet fuel, is around $175 a barrel. Jet fuel in Singapore, a key Asian benchmark, was about $156 a barrel on 9 November.
Comparing those two benchmarks roughly, that leaves a gap of about $64 a barrel between jet fuel and Brent. That gap is the crack spread, and IATA has warned that it has become structurally higher and more volatile. Refinery closures in developed economies and stronger demand for diesel have both pushed it up. IATA says the recent average spread is more than $12 a barrel above its 2012 to 2019 average.
The result is that jet fuel falls more slowly than crude. IATA’s global index stood at about $99 a barrel the day before the war began. Today’s prices remain far above that.
Europe’s Hedging Cliff
This is where the UK and Europe differ from the US.
Most big US airlines do not hedge and buy fuel at market prices. JetBlue has no hedge at all, and Delta absorbed a $6bn rise in fuel costs this year. Those airlines felt the shock immediately and passed it on quickly. US airfares in September were 22.4% higher than a year earlier. When fuel falls, they feel the relief immediately too.
European airlines hedge heavily, which delayed the pain. Ryanair is the clearest example. It hedged 80% of this financial year’s fuel at around $67 a barrel, well below today’s market. Only the remaining 20% was exposed, and Ryanair paid roughly double for it, at about $130.
Next year looks very different. Ryanair has hedged only 25% of its fuel for the year from April 2027, at about $95 a barrel. The other 75% will be bought at whatever the market charges. Michael O’Leary called it “a very significant cost cliff” and expects Ryanair’s fuel bill to rise by about €2bn.
Our own rough sums show the scale. This year, Ryanair’s blended fuel price works out at about $80 a barrel. If jet fuel stayed around $156, next year’s blend would be about $141, an increase of more than 75%. On the same sums, jet fuel would have to fall to about $75 a barrel, below where it was before the war, just for Ryanair’s average fuel price to stand still.
O’Leary has said he expects European fares to rise by “10%, maybe even 20%” next year. IATA estimates airlines worldwide hedged only about a third of their 2026 fuel. European airlines that hedged heavily face the same problem as Ryanair as their cover rolls off.
Fares Are Set Months in Advance
The second force is timing. Airlines plan schedules and sell seats months before departure. United’s chief financial officer, Mike Leskinen, said in September that about 35% of its fourth quarter tickets had already been sold before the latest fuel jump, so the airline could not reprice them.
The same lag works in reverse. Seats for spring and summer 2027 are already on sale, priced against the fuel costs airlines expect to face. They will not reprice those seats downwards because of one good week for oil.
Volatility matters as much as the price. “I don’t actually care if it stays high. I just need it to stabilize,” Leskinen said. Stephen Treanor, a finance professor at California State University, Chico, said jet fuel prices “need to fall and stay down” for fares to fall on a sustained basis. One fortnight of falling oil prices does not meet that test.
Airlines Need to Rebuild Their Margins
The third force is the state of airline finances. In June, IATA cut its forecast for industry net profit this year to $23bn, down from the $41bn it expected in December. That is a net margin of just 2%. It expects fuel to account for 31.4% of airline costs this year, up from 25.4% in 2025.
Airlines that have spent a year absorbing that shock will use any fall in fuel to rebuild their profits before they cut fares. Ryanair is already reviewing almost every cost it has, including possible temporary pay freezes.
Capacity is tight as well. Ryanair cut its traffic target for this financial year from 216 million to 214 million passengers. US airlines including American, United and Southwest have trimmed their schedules, and both Airbus and Boeing are delivering fewer new aircraft than airlines want. Airbus still needs 249 deliveries in November and December to hit its target for the year. Fewer seats and steady demand give airlines little reason to discount.
What UK Passengers Are Already Seeing
The effect is already showing up in British inflation figures. In the Office for National Statistics’ September figures, transport services, particularly air fares, made the largest upward contribution to services inflation. Fares on European routes fell less after the summer peak than they did a year earlier. Ryanair says its fares for October to December are “trending modestly ahead” of last year.
So far, that is the cushioned version. Hedged European airlines have spent much of 2026 burning fuel priced before the war. Most of 2027’s fuel has not been bought yet.
What Could Change the Picture
A lasting peace agreement would matter most. It could ease the refined product shortage and narrow the crack spread, bringing jet fuel down faster than it is falling now. If that happened early in the new year, airlines would have time to buy more of their 2027 fuel at lower prices and soften the cliff.
A brief rally will not be enough. Airlines will want evidence that prices have settled before committing to new hedges, and before cutting fares on seats they have already sold.
The Bottom Line
Falling oil is good news for airlines first and passengers later, if at all. American airlines, which buy fuel at market prices, will feel the benefit within weeks. European airlines, which hedged their way through this year’s shock, still face the cost of replacing those hedges.
For UK holidaymakers booking summer 2027, the most likely outcome is that fares rise less than they would have done, rather than falling. O’Leary’s forecast of 10% to 20% increases may prove too high if peace holds and jet fuel follows crude down. Cheap flights, though, will depend on what jet fuel does over the next few months, not what Brent did last week.
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