Willie Walsh, the Director General of the International Air Transport Association (IATA), said the two-week U.S.-Iran ceasefire is positive for the airline industry but warned of higher jet fuel prices for some time, even if the Strait of Hormuz is reopened.

Jet Fuel Prices Remain A Major Concern

Fuel is the second largest expense for the airlines, accounting for roughly 27% of operating costs. Fuel prices depend heavily on refining capacity, much of which has been disrupted in the Middle East conflict. In fact, jet fuel prices surged more than oil prices, even doubling at one point during the crisis.   

Since the war erupted, WTI crude oil futures surged to nearly $118 per barrel from $67 per barrel and have now fallen below $94 in early trading today following the two-week truce announcement.

The price of jet fuel in the U.S. has nearly doubled, from $2.50 a gallon on Feb. 27 to $4.81 a gallon on April 7. Although oil prices have now declined about 15%, jet fuel prices are expected to take months to recover, keeping pressure on airline costs.

Thai Airways CEO Chai Eamsiri said, "This is the worst oil shock in his near-four decade career."

Walsh added, "The short-term risk of supply shortages still remains. Asia is most vulnerable, followed by Africa and Europe."

Airline Stocks Are Surging

Airline stocks are surging sharply in premarket trading following the ceasefire deal.

American Airlines Inc. (NASDAQ:AAL), United Airlines Holdings Inc. (NASDAQ:UAL) and Southwest Airlines Co. (NYSE:LUV) were up by around 10% in pre-market trading on Wednesday.

Delta Air Lines Inc. (NYSE:DAL) surged around 13% in pre-market trading and JetBlue Airways Corp. (NASDAQ:JBLU) was up about 7%.

US Global Jets ETF (NYSE:JETS), which provides exposure to the global airline industry, rose nearly 10%.

Photo courtesy: Synthetic Messiah/Shutterstock