Ryanair CEO Michael O'Leary warned on Tuesday that airlines cannot keep fares at current levels with oil prices where they stand, even as demand for air travel remains very strong.

His comments make Ryanair the latest carrier to flag the damage from sustained high jet fuel costs, which account for 30% to 40% of airline operating costs. For European hoteliers and tour operators, the warning matters directly: the low-fare model that has driven inbound city-break and resort demand across the continent depends on fuel costs staying within reach of ultra-low-cost carriers.

Lufthansa gave the sharpest quantification of the problem. CEO Carsten Spohr said on Monday in Frankfurt that the group's additional jet fuel bill this year will exceed the €1.5 billion figure the carrier flagged in August, as the Iran war drags on and oil prices spike.

"The 1.5 billion I mentioned a few months ago as the additional burden for fuel ... the figure we'll probably have to report at the end of the year will be higher," Spohr told journalists. He did not give a revised projection.

The numbers behind the warning

In August, Lufthansa said it expects total 2026 fuel costs of €8.66 billion, a figure that already includes the additional €1.5 billion burden and compares with an earlier forecast of €8.9 billion. The carrier also warned at the time that profits could suffer.

Hedging has cushioned Lufthansa from part of the volatility. Chief financial officer Till Streichert told analysts in August that the group's fuel hedge ratio stands at 86% for 2026 and a little above 50% for 2027. That leaves the group less exposed than unhedged competitors in the near term, but the 2027 ratio shows the protection thins out quickly.

Despite the higher expected fuel cost, Spohr reaffirmed Lufthansa's forecast for an operating profit of €1.7 billion to €2.2 billion, against €2.0 billion in the previous year.

Turnaround program slows

The group's turnaround program, which targets an operating margin of 8% to 10% by 2028 to 2030, has been set back by the sector-wide cost spiral, Spohr said.

"[Our] financial performance hasn't yet brought us to our desired results this year, given the headwinds in fuel consumption that everyone else has had to contend with," he told reporters.

One bright spot is premium demand. Spohr reported a boom in bookings for premium economy and business cabins, echoing a trend competitors Air France and Aer Lingus owner IAG have already highlighted. For hotel groups, that shift reinforces the two-speed market now visible across European hospitality: strong premium and corporate demand, with price-sensitive leisure travel at the mercy of fare inflation.

O'Leary's warning cuts the other way. Ryanair has built the largest short-haul network in Europe on the lowest fares in the market, and its traffic feeds budget-oriented accommodation supply in Spain, Italy, Portugal and Central Europe. If fuel costs force fare increases across the low-cost segment, secondary leisure destinations dependent on weekend air traffic would feel the impact first.

The sector now waits on two variables: the trajectory of oil prices as the Iran conflict continues, and how much of the added cost carriers pass to passengers through fares rather than absorbing in margins. Lufthansa will report the final fuel figure at its end-of-year results, where Spohr must also show whether the €1.7 billion to €2.2 billion operating profit forecast survives contact with the new number.