Warning of higher airfares as airlines contend with inflated Iran war-related fuel prices

Airlines operating on thin margins will have “little choice” but to raise fares to cover higher fuel costs resulting from the Middle East war.

The warning came from Iata chief Willie Walsh as the airline trade body reported a 2.2% fall in passenger demand in May against the same month last year.

Excluding the Middle East, demand grew by 0.7% in the month as total capacity declined by 2.3% year on year. The load factor of 83.5% was a record high for May.

International demand fell 1.6% compared to May 2025 as capacity dropped by 2.4%.

Domestic demand contracted by 3.1% with capacity down by 2.1%.

Iata director general Walsh said: “Air passenger demand was down 2.2% year on year in May on the impact of war in the Middle East. The decline was centered on carriers in the Middle East with a 28.4% year-on-year fall. 

“That’s a significant improvement on the 46.6% decline recorded for April, a sign of the region’s resilience. 

“Notably, we also saw year on year contractions in demand in both North America and Asia, largely related to domestic market conditions in the US and China.”

He added: “Overall, May demand still appeared to be largely resilient in the face of high fuel prices and air fares. While the recent sharp drop in oil prices is an encouraging development, the challenges created by the war will likely persist for some time.

“Oil supply through the Strait of Hormuz remains uncertain and it is likely to take time before the benefit of lower oil prices is reflected in ‘normalised’ jet fuel pricing. 

“In the meantime, airlines who are operating on a 2% margin will have little choice but to continue testing demand resilience with higher fares that attempt to cover elevated fuel costs.”