Ryanair Warns of 2027 Airfare Hikes as European Airlines' Fuel Hedges Expire

Ryanair Group CEO Michael O'Leary warned on October 8, 2026 that jet fuel in Europe is running about 50% above its pre-war level and is likely to stay there for the next 12 to 18 months, which would carry the cost shock into 2028. Speaking at an Airlines for Europe press conference in Brussels, he said carriers cannot survive without passing these costs on through higher fares and that "the customers will have to pay." It was the first time a senior airline executive publicly said that the effects of the Iran war on fuel costs could last that long.

O'Leary appeared alongside the chief executives of Air France-KLM, Lufthansa, easyJet and British Airways owner IAG. Together, the five groups carry roughly 660 million passengers a year. Several of them have already started to raise fares to cover part of their fuel bill.

Before the war, the Middle East supplied about half of Europe's jet fuel imports. The Northwest European jet fuel benchmark stood at about $831 per metric ton on February 27. It reached a record above $1,840 per metric ton on April 2, then fell back to around $912 in late June after an interim agreement between Washington and Tehran. Prices climbed again once fighting resumed in July and stood at $1,476 per metric ton in early September, the highest level since May.

The situation has not eased in October. Ship traffic through the Strait of Hormuz remains a small fraction of normal, with only 4 transits recorded on October 4 compared with about 85 per day before the crisis, and several tankers have been attacked this month. Iran said on October 4 that the strait will stay closed until its conditions are met. Brent crude settled near $105 per barrel on October 9, against roughly $72 before the war. O'Leary's estimate of a 50% increase also sits at the low end of the range. Data from the IATA jet fuel price monitor suggest that average prices are closer to double their pre-war level.

Passengers have not yet felt the full increase, and the reason is fuel hedging. Airlines use financial contracts such as swaps, forwards and options to fix the price of a large share of the fuel they expect to burn, usually 12 to 24 months ahead. If the market price rises above the agreed price, the contract pays the airline the difference, so its real fuel cost stays close to the level it locked in. Coverage is built up gradually and is highest for the nearest months.

Most of the hedges covering 2026 were signed in 2025, when prices were low. European airlines are therefore still paying pre-war prices for the bulk of the fuel they use today, and only the unhedged share is bought at current market prices. That protection is temporary. As the contracts expire, they have to be replaced at today's forward prices, which already include the war premium, and many airlines have hedged far less fuel for 2027 than they had for 2026.

Ryanair illustrates the mechanism. It has hedged 80% of its fuel for the financial year ending in March 2027 at about $668 per metric ton, less than half the market price seen in early September. For the following year, it had covered only 15% of its needs as of June 30, at about $848 per metric ton, which is 27% more expensive. Lufthansa was 86% hedged for 2026 and a little above 50% for 2027. Air France-KLM was 67% hedged for 2026 and 40% for 2027. EasyJet had covered 79% of its needs for the last quarter of 2026, then 62% for the first half of 2027 and 37% for the second half, at $754 and $777 per metric ton. Worldwide, IATA estimates that airlines hedged only about one third of their 2026 fuel consumption, and US carriers, which largely abandoned hedging years ago, are exposed to market prices.

The unhedged share is already hurting results. Ryanair's profit for the April to June quarter fell 34% to 538 million euros after the price of its unhedged fuel more than doubled. Lufthansa said on September 30 that its additional fuel bill for 2026 will exceed the 1.5 billion euros it had forecast in August. Air France-KLM expects a 2026 fuel bill of $8.9 billion, about $2 billion more than in 2025.

Airlines are also cutting flights where fuel costs make them unprofitable. On September 2, Ryanair lowered its traffic target for the year to March 2027 from 216 million to 214 million passengers and said its November to March traffic will be roughly flat year on year, a move expected to reduce winter losses by 70 million to 100 million euros. In recent days, easyJet confirmed that it is removing a further 600,000 to 700,000 seats from its winter program, which brings its total winter reduction to as much as 1.4 million seats.

O'Leary expects fare increases to continue in the coming months. He said in recent weeks that ticket prices could be 10% to 20% higher in summer 2027 if fuel stays at current levels. Ryanair says it will not add a fuel surcharge, but he expects traditional carriers to introduce one next summer.

On physical supply, O'Leary was more confident than many analysts. Consultancy Energy Aspects forecasts a European jet fuel deficit of about 510,000 barrels per day in the fourth quarter of 2026, and stocks in the Amsterdam-Rotterdam-Antwerp hub fell to a seven-year low in September. Europe is filling the gap with cargoes from more distant suppliers. Imports from South Korea reached about 129,000 barrels per day in September, the highest since October 2022, with additional volumes coming from Nigeria, the United States and Canada. Data firm Kpler expects nearly 900,000 metric tons of extra supply from Asia in the coming months and considers that Europe should have enough jet fuel through the end of the year, although smaller airports remain more exposed. O'Leary said he sees no availability problem in Europe this winter or next summer.

The main uncertainty is demand. Airlines can pass on fuel costs only as long as passengers keep booking, and results so far are mixed. Air France-KLM recovered about 85% of the fuel price effect through revenue in the second quarter, while IAG expects to recover around 60% through revenue and cost measures. Ryanair still carried 22.2 million passengers in August, 6% more than a year earlier. Ryanair has also warned that less well-hedged competitors may struggle to maintain capacity, or even to survive, during the winter season.

The real test will come in 2027. If the Strait of Hormuz stays closed and prices hold near current levels, the hedges that shielded airlines and travelers in 2026 will progressively roll off, and the full cost of fuel will reach airline accounts and ticket prices from next year.