Air France-KLM fears $2.4 billion in higher fuel costs due to Strait of Hormuz closure

Airline conglomerate Air France-KLM expects to spend an additional 2.4 billion dollars on fuel this year compared to last year as a result of the current conflicts in the Middle East. Even though the airline group managed to show improved results in the first quarter, the major blow from expensive kerosene prices will emerge in the coming months, warns the Franco-Dutch company.

Total fuel costs are expected to rise to 9.3 billion dollars in 2026, just under 8 billion euros at the current exchange rate. Because higher energy prices have a delayed impact on kerosene prices, Air France-KLM was hardly affected by the closure of the Strait of Hormuz during the first three months of the year. This despite the conflict between the United States, Israel, and Iran causing a major disruption to the energy markets.

Moreover, Air France-KLM has tried to safeguard two-thirds of its kerosene consumption this year against the risk of rising fuel prices through hedge contracts. However, the company already fears it will have to spend 1.1 billion dollars in additional kerosene costs in April, May, and June, or about 940 million euros.

"While fuel price increases are not yet reflected in the results we present today, they are expected to weigh on the coming quarters," said the company's CEO, Ben Smith. He also referred to additional cost savings implemented by Air France-KLM in response to rising kerosene prices, such as a hiring freeze, reduced business travel, and a cut in spending on consultants.

In the first three months of the year, Air France-KLM managed to improve its operating result to a loss of 27 million euros. A year earlier, the company still suffered an operating loss of 328 million euros, calculated before interest payments and taxes.

Air France and KLM also benefited from higher airfares due to the war. Thousands of flights across the sector were cancelled when Gulf States closed their airspace, or airlines scrapped flights as a precaution. This created higher demand for tickets on flights that did operate.

In particular, flights to and from Asia became significantly more expensive, as major Gulf State airlines could barely continue to fly on those routes. Air France and KLM, however, decided to fly there more frequently.

Despite those windfalls, Air France-KLM has become more pessimistic about this year. The group revised down its capacity growth estimates to between 2 and 4 percent this year, where previously it had expected to increase capacity by 3 to 5 percent when compared to last year.

Nevertheless, the war has so far had little impact on travel behavior. The number of early bookings in April on Air France, KLM, and budget subsidiary Transavia hardly differed from last year.