Airlines are already preparing for the oil crisis

war with Iran and the ensuing blockade in the Strait of Hormuz, a vital shipping lane, caused oil prices to rise and prompted governments to search for their reserves. How high will prices rise, and how much worse can they get?

On Friday night, United Airlines CEO Scott Kirby posted a memo to his employees explaining that his heavily fuel-reliant company is bracing for a very long fallout. “Our plans assume the price of oil falls to $175 per barrel and does not return to $100 per barrel until the end of 2027,” he wrote.

Aviation fuel accounts for between a quarter and a third of airline operating costs. Prices have doubled from $70 a barrel since the war began four weeks ago, threatening to seriously reduce airline profitability. Kirby said his airline has a strategy: United will cut about 5 percent of its planned flight schedule during the second and third quarters of this year, with cuts coming especially in “peak periods” like redeyes and less popular travel days: Tuesday, Wednesday and Saturday.

“Honestly, I think there’s a good chance it won’t be that bad, but… there’s not much downside for us to prepare for this outcome,” Kirby wrote in the memo.

Analysts say United’s moves are important not only for the travel industry but for the broader global economy. If things play out the way Kirby predicts, “it will be very unwelcome news for everyone who is not in the oil refining business,” says Jason Miller, a professor of supply chain management at Michigan State University’s Eli Broad College of Business.

Airlines may be a particularly prominent canary in the economic coalmine because their businesses are more dependent on oil prices, especially refined oil prices, than most companies. Air transportation ranks slightly lower than asphalt paving, with the U.S. industry spending the lion’s share of its nonlabor costs on refined petroleum products, Miller calculates. Miller says Kirby’s forecast, while dire, is in line with what others in the commodity market expect.

“Economically, this energy shock comes at the worst possible time,” Miller says. Add its effects to a sluggish labor market and a global economy troubled by the US tariff regime, and economists begin to think about a recession. The Iran war and ensuing energy crisis “lasted longer than many expected,” Miller says. Kirby’s memo is an admission that “the Strait of Hormuz may not be open for business very quickly.”

The effects of rising fuel prices are already affecting the travel industry. Last week, American Airlines CEO Robert Isom said the company spent an additional $400 million on fuel. Airlines have reported strong demand in recent weeks, with United’s Kirby noting in his note that the past 10 weeks have seen the airline generate its most booking revenue ever. But it remains to be seen whether many people are actually excited to travel, or whether travelers spooked by geopolitics and fears of rising ticket prices move early to lock in their plans before oil costs rise. Isom noted that if oil prices remain high, “we will certainly be smart in terms of capacity, to make sure that supply and demand stay in balance.”

How bad airlines — and their passengers — can get depends not only on how long oil prices remain high, but on how long companies’ questions about the crisis remain unanswered.

“If we stay in this state of uncertainty for a long time, it adds complexity,” says Ahmed Abdel-Ghany, who studies aviation operations as a professor at Embry-Riddle Aeronautical University’s College of Business Administration. “The longer this goes on, the more problems there will be for the remaining airlines.”