Air France-KLM Adjusts Growth Forecast Amid Rising Fuel Costs Due to Iran Conflict

Air France-KLM has revised its capacity growth projections for the year, attributing the changes to escalating fuel costs driven by the ongoing conflict in Iran. The French-Dutch airline anticipates a staggering increase in its fuel expenses, projecting a rise of €24 billion ($18 billion) this year due to the surge in costs that began with the onset of the Middle East conflict. In light of the higher fuel prices, Air France-KLM has reduced its capacity growth expectations to between 2% and 4%, a decline from the previously forecasted range of 3% to 5%. Ben Smith, the airline's chief executive, acknowledged the difficult operating environment, stating that rising fuel costs are expected to impact the company's performance in the coming quarters. This reassessment follows the reporting of a smaller-than-expected loss for the first quarter of the year. Despite these challenges, the airline's rolling fuel hedging policy is anticipated to save it €1.5 billion. Nevertheless, the overall fuel bill for 2026 is projected to reach €9.3 billion, which marks an increase of €2.4 billion compared to the previous year. In particular, Air France-KLM expects an additional expenditure of €1.1 billion on fuel for the second quarter of this year, spanning from April to June. For the first quarter, Air France-KLM reported an operational loss of €27 million, significantly better than the €389 million loss foreseen by industry analysts. The airline noted an initial increase in demand for flights following the outbreak of the Iran war, as more travelers opted for European carriers for routes to Asia. Consequently, the airline has also raised ticket prices to counterbalance the increased fuel costs. Meanwhile, European airport trade associations have warned that smaller airports in the region may face severe challenges if jet fuel shortages result in widespread flight cancellations. The geopolitical instability, particularly concerns regarding the blockage of the Strait of Hormuz, has propelled Brent crude prices to a four-year high of $126 per barrel. In contrasting news from the aviation sector, UK jet engine manufacturer Rolls-Royce insists it will maintain its profit guidance for the year, despite the turmoil in the market. Tufan Erginbilgiç, the company's chief executive, is set to inform shareholders at the annual general meeting that Rolls-Royce is taking necessary measures to support its workforce, customers, and suppliers. Erginbilgiç expressed optimism regarding the firm's ability to mitigate the current financial impacts caused by the ongoing disruptions and emphasized the company’s commitment to closely monitor the situation for any future direct or indirect consequences, ready to take action as needed. Related Sources: • Source 1 • Source 2