Air New Zealand AIR.NZ said on Tuesday it has raised fares due to the Middle East conflict and may take further pricing action, underscoring how global airlines will seek to pass on the costs of higher oil prices to passengers.

Jet fuel prices, which were around $85 to $90 per barrel prior to the conflict, have increased sharply to between $150 and $200 per barrel in recent days, New Zealand's flag carrier said, adding it was suspending its financial outlook for 2026 due to uncertainty over the conflict.

The U.S.-Israeli war on Iran has sent oil prices surging, upending global travel and sparking fears of a deep travel slump and the potential for the widespread grounding of planes.

In an emailed response to Reuters, Air New Zealand said it had raised one-way economy fares by NZ$10 ($5.92) on domestic routes, NZ$20 on short-haul international services and NZ$90 on long-haul flights.

While air fares have spiked on Asia-Europe routes due to airspace closures and capacity constraints, Air New Zealand is one of the first airlines to announce broad increases to ticket prices since the start of the war.

"If the conflict leads to continued elevated jet fuel costs, we may need to take further pricing action and adjust our network and schedule as required," the carrier said.

As oil prices soar, Vietnam AirlinesHVN.HM has asked local authorities to remove an environment tax on jet fuel to help it maintain operations. The Southeast Asian nation's government said Vietnamese airlines' operating costs have risen 60% to 70% due to the rise in jet fuel prices and fuel suppliers were facing difficulties in meeting airline demand.

Air New Zealand said there was currently no disruption to jet fuel supplies in New Zealand, but it was working closely with suppliers and the government to monitor global developments.

AIRLINE SHARES STABILISE AFTER SELLOFF

In a move that lifted some airline stocks, U.S. President Donald Trump said on Monday the war could be over soon, sending markets on a roller coaster, with oil prices retreating to around $90 a barrel on Tuesday from a high of $119 on Monday.

In Asia, airline shares showed signs of stabilising, with Air New Zealand up 2% after falling nearly 8% on Monday. Korean Air Lines 003490.KS rose 6%, after dropping 8.6% a day earlier, while Australia's Qantas Airways QAN.AX gained more than 1%, gaining some ground after falling 4.5% on Monday. Japan Airlines 9201.T gained more than 2%.

Fuel is the second-largest expense for air carriers after labour, typically accounting for a fifth to a quarter of operating expenses. Some major Asian and European airlines have oil hedging in place, but U.S. airlines largely stopped the practice over the last two decades.

High oil prices and airspace closures due to the war are constraining capacity, pushing airline tickets on some routes sky-high and forcing some people to reconsider travel plans ahead of the peak summer season.

CONFLICT TAKES TOLL ON TRAVEL INDUSTRY

High fuel prices could have severe implications for the global travel industry, with airlines already navigating tight airspace as pilots reroute to avoid the Middle East conflict and capacity on popular routes fills up.

Combined, Emirates, Qatar Airways and Etihad normally fly about one-third of the passengers from Europe to Asia and more than half of all passengers from Europe to Australia, New Zealand and nearby Pacific Islands, according to Cirium.

South Korea's HanaTour Service 039130.KS said it has been cancelling group tours that include flights to the Middle East, such as travel to Dubai or itineraries transiting through Dubai en route to Europe, and it is waiving cancellation fees for affected customers. All Middle East-related tours for March will be suspended, it added.

In Thailand, the Ministry of Tourism forecast that if the conflict drags on for more than eight weeks, the country will lose a total of 595,974 tourists and 40.9 billion baht ($1.29 billion) in tourism revenue.

($1 = 31.7400 baht)

($1 = 1.6892 New Zealand dollars)

-Shivangi Lahiri/Reuters