A Memorandum of Understanding signed between the United States and Iran last week has given the global aviation industry its first real sense of optimism in over 100 days.
In the early days of the conflict, Iran closed the Strait of Hormuz, through which approximately 20 per cent of the world’s petroleum passes. That narrow passageway has remained closed, except for brief intervals, driving up crude oil prices. Jet fuel prices briefly soared past US$200 per barrel before dropping again. Negotiations to end the war are ongoing, but energy experts say even if the conflict were to end today, it could take up to two months for global jet fuel energy supplies, and by extension prices, to return to pre-war levels.
At its 82nd annual meeting in Rio de Janeiro, Brazil, earlier this month, the International Air Transport Association (IATA) revised its 2026 financial outlook. The trade organisation, which represents over 360 airlines, now projects the average cost per barrel of jet fuel will settle at US$152 – a 70 per cent increase compared to 2025. With fuel now accounting for 30 per cent to 40 per cent of airline operating costs, carriers worldwide have responded by slashing capacity, cutting routes with less demand, and raising ticket prices.
Here in the Caribbean, news of the US-Iran agreement has made acting Caribbean Airlines (CAL) CEO Varma Khillawan optimistic. In a brief interview with Guardian Media, Khillawan said, “We are seeing the prices coming down, which is encouraging for the industry. And we look forward to the prices returning to where they are regularly, or we are accustomed to.”
Khillawan noted that once fuel prices normalise, the carrier intends to remove the temporary fuel surcharge introduced on April 10 across all regional and international routes. The US$15 to US$25 per-sector surcharge has helped to pay the airline’s fuel bill, which almost doubled in a matter of months, though the airline insists it absorbs the majority of the financial costs.
According to Khillawan, passenger bookings remain steady. CAL’s modern, Boeing 737-8 jet fleet with its aerodynamic advanced technology winglets and high-bypass CFM LEAP-1B turbofan engines helps lower operating costs on its medium-haul route network. Aircraft burn the most fuel during the take-off and initial climb phases, which require higher engine thrust. They are also less fuel-efficient at lower altitudes because denser air creates greater aerodynamic drag. With several medium-haul routes, CAL’s jets spend more time at higher altitudes while at cruise, translating into lower fuel costs per mile.
Outgoing IATA director general Willie Walsh told Guardian Media at the annual meeting that high fuel costs are an issue every airline around the world is facing, but in price-sensitive regions like the Caribbean, the impact is felt more acutely.
With more short-haul routes in its network and aircraft with lower seating capacity, the region’s largest privately owned airline, interCaribbean Airways, has seen fuel account for almost 40 per cent of its operational costs, since the start of the war. But it goes beyond that.
While interCaribbean CEO Trevor Sadler would not say if passenger numbers were down, he told Guardian Media of an unlikely source currently influencing travel demand: the price of groceries.
“Across the Caribbean, no question aviation fuel prices have risen, but of significant importance is fuel costs for shipping, which in turn, have seen grocery store prices increase significantly. While the former is not to be understated, the latter puts pressure on household budgets,” he said.
Like Khillawan, Sadler is glad to see an agreement signed between Washington and Tehran but cautions that until a final agreement is signed, jet fuel prices will remain volatile.
Most regional carriers do not hedge fuel, the practice of locking in jet fuel prices at a set rate, and interCaribbean is no different. Fuel hedging can be beneficial in situations where oil prices have skyrocketed; however, if prices drop, then airlines are locked in at a higher than market rate. Sadler said the company will “control, monitor, and determine if there is a moment where this can be considered”.
For now, the carrier has chosen not to increase its existing fuel surcharge of US$15, which was introduced in 2022. Instead, the airline monitors prices and load factors to maintain an “optimal flying programme,” according to Sadler.
Elsewhere in the Caribbean, Sint Maarten-based airline Winair is also considering whether to adopt a fuel hedging policy. For the period mid-March to Mid-June, the carrier’s extra fuel costs were about US$1 million. To cushion the impact, the airline introduced a fuel surcharge on May 1; US$5 one-way on shorter routes and US$15 one-way on the longest routes.
Although Winair also says it absorbs most of its fuel costs, Winair CEO Hans van de Velde told Guardian Media the decision to reintroduce a fuel surcharge wasn’t taken lightly.
“Most of the fuel is paid for the weight of the aircraft, whether you fly full or empty. So, it is crucial in the decision-making that the effect is not that passenger numbers get lower,” he said. He added that, “If a fuel surcharge would lead to (fewer) passengers, then you are hurt twice: one by higher fuel prices and two by lower passenger (numbers)”. Once fuel prices return to pre-war levels, van de Velde plans to remove the fuel surcharge.
Despite careful planning, Winair is already bracing for a potential drop in passenger numbers for the July/August season. The airline is heavily dependent on connecting traffic—funnelling business and leisure passengers through its Princess Juliana International Airport hub, and a drop in passenger numbers combined with higher operating costs means less revenue for the airline.
Winair recorded a net profit of US$3.7 million in 2023 and 2024 and recently announced US$4.3 million in net profit through Q3 2025. Van de Velde cautions, however, that the company may not be able to repeat its record-breaking performance in 2026.
“We made a forecast for this year, and assuming the conflict actually ends this summer, yes, Winair will have good profitability. But it is clear [that] with these fuel prices, we [will] take a substantial hit, so it’s not realistic to expect to get to the level of last year, for any airline, that is. If the war continues, we are looking at about break-even,” van de Velde said.
Still, he is confident that the region’s oldest airline can weather the storm. “This type of market development always hurts weak airlines the most, since they don’t have the reserves needed. Winair, luckily, is in a very strong position, so we can sustain this for a long time,” he said.
Only time will tell just how and when the conflict will end but ultimately van de Velde views the current geopolitical shock as a necessary catalyst for structural change. His perspective aligns with findings from IATA, which revealed a troubling trend: even though post-pandemic passenger volumes have fully recovered, global route connectivity has flatlined, contracting by 0.3 per cent as airlines quietly abandon thinner, less profitable regional services.
Mere weeks ago, Caribbean Airlines cut several routes and reduced services in the French Caribbean markets, citing millions of dollars in losses, though Khillawan was quick to point out that the decision was unrelated to the high fuel costs.
For the Caribbean, van de Velde believes the ultimate solution lies in market consolidation.
“Contrary to popular belief, on several routes there is a cut-throat competition that is not sustainable, considering the low passenger numbers on many routes,” van de Velde said.
“In the long term, two, maybe three strong airlines or airline networks in the Caribbean would mean a much more stable aviation market. That would be beneficial for passengers and connectivity, with fewer airlines going broke, fewer cancellations, and more stability.”
