Clint Henderson recently hopped on his computer to find a flight for his mother from the Bay Area to Kansas City, Missouri. He was expecting to pay around $400, maybe $500 tops. Much to his shock, the ticket cost more than $1,500 for the cheapest seat category.
“That is obscene,” said Henderson, a managing editor at travel website the Points Guy. “It wasn’t even for first class.”
Airfares are, by nature, volatile. However, Henderson said bigger forces could be at play. The war in Iran, now in its third week, is causing oil prices to soar, saddling airlines with some of the highest fuel costs in years.
Travelers familiar with last year’s egg-flation might sense what’s coming — escalating prices, but this time on flights, not omelets and frittatas.
“It usually takes weeks or even months for the airlines to pass along fuel surcharges, but they have gotten much more aggressive about reacting to the cost of jet fuel,” said Henderson, who has also seen higher fares between New York and San Francisco and to Hawaii. “Tickets are going up really fast.”
Shortly after the United States and Israel launched airstrikes on Iran, Cathay Pacific, Hong Kong’s flagship carrier, announced fuel surcharges ranging from $18.20 to $149.20 per flight segment, depending on the route and origin country of the reservation. Air France-KLM said it will increase the price of long-haul tickets by about $58 on round-trip economy fares; Thai Airways will raise international fares by 10 to 15 percent. Passengers on select routes will pay more on Air New Zealand, Qantas and Scandinavian Airlines (SAS), which in a statement described the strategy as “a temporary fuel-related price adjustment.”
To wrangle soaring fuel prices, aviation economists and analysts say airlines could employ measures that don’t directly pinch passengers’ wallets. They could retire older, less-efficient planes, ground aircraft, furlough employees, or cut or reduce the frequency of certain routes. SAS, for instance, said it has planned a limited number of short‑term cancellations, “consolidating capacity on routes where alternative connections are available.”
Unfortunately for price-sensitive travelers, the quickest and easiest solution is to toss the hot potato to the customer. Whether they decide to reach out and catch it is another issue.
Airlines add fuel surcharges
To avoid swings in the oil industry, airlines once participated in fuel hedging, locking in a set price. Most carriers, especially in the United States, have abandoned this risk-management practice. These days, they will purchase a 12- or 18-month contract with a supplier that charges the market price — the pump rate, so to speak.
Not long after the U.S. and Israel launched military strikes against Iran, the airlines started to feel the pressure of mounting fuel prices.
Last week, Qantas said in a statement that fuel costs have “risen by up to 150 percent over the past fortnight.” At the J.P. Morgan Industrials Conference on Tuesday, American Airlines CEO Robert Isom said the carrier has faced a $400 million increase in fuel expenses in the first quarter, a figure the chief executives at Delta Air Lines and United echoed.
“The major domestics are going to take an $11 billion hit just on fuel costs this year,” said Alex Jacquez, chief of policy and advocacy at Groundwork Collaborative, an economic think tank.
Airlines for America’s Argus U.S. Jet Fuel Index tracks daily prices over 60 days. On Tuesday, the going rate for fuel was $3.93 per gallon, up from $2.50 on Feb. 27, the day before the first strikes on Iran. What seems like tip jar change can really add up.
“They buy so much jet fuel that even a couple cents a gallon is kind of disastrous,” Jacquez said. “Given all of the impacts we’ve seen, airfare is not going to get cheaper.”
When fuel prices head north, airlines often resurrect or increase the fuel surcharge, a temporary solution first deployed in 2004, when oil climbed to $40 a barrel. The line item will appear in the fare breakdown as “fuel surcharge,” “carrier fee,” “carrier-imposed charge” or “YQ fee.” On a Virgin Atlantic flight from Dulles International Airport to London in early April, an $849 ticket listed a $51 fare and a $508 carrier-imposed International Surcharge (YQ) — code name “fuel surcharge” — plus a carbon surcharge and government taxes and fees.
Airline loyalty members who redeem points for a flight are not immune to the surcharges, either. Some carriers will charge the additional costs — taxes, fees, surcharges — on top of the mileage points.
Months before the conflict in Iran, Henderson had booked an Etihad Airways ticket to Johannesburg using points, plus paying $84 in fuel surcharges. For his March flight, he was supposed to connect through Abu Dhabi, but the airline canceled that portion of his journey. He called to rebook and was rerouted through London, a safer itinerary but much more expensive — even on a “free” ticket.
“They repriced the ticket using points but added $1,400 in fuel surcharges and taxes,” Henderson said. “My fear is that this is going to spread to more and more carriers to make up for the cost of jet fuel, which is rising so rapidly.”
An ‘existential threat’
Earlier this month, Deutsche Bank analysts described the fuel price surge as an “existential threat” to the airlines. The financial institution’s weekly airline industry update offers a peek into the abyss.
Based on its March 9 report of more than 500 international and U.S. routes, advance-purchase domestic fares increased by double or triple digits week-over-week. Spirit experienced the greatest spike, at 124.3 percent or $193 one way; Alaska Airline’s rise was comparatively less dramatic but still steep at 56.7 percent or $336 one way. Geographically, transcontinental flights increased by 106.7 percent to $414 one way; Florida and transatlantic flights rose by 42.9 percent and 39.4 percent, respectively.
The picture slightly improved this week. A report Monday noted, however, that fares on JetBlue, Delta and Hawaiian were up, as were rates to the Caribbean and Hawaii.
“Airfare is inherently volatile,” said Scott Keyes, an airfare expert and founder of Going, a travel technology company that specializes in bargain fares. “It’s the most volatile thing that we purchase.”
Because of the Gordian knot of airfare pricing, Keyes said isolating a single cause for rising fares can be challenging, even in the midst of a war in one of the world’s largest oil-producing regions. Fares traditionally shoot up during peak travel seasons and special events, such as spring break and summer vacation, the World Cup matches or a Harry Styles concert. They can increase the closer you book to the departure date, too.
However, some fluctuations in fares and schedules are a direct consequence of the Middle East strife. To avoid closed or hazardous airspace, airlines are suspending routes or redrawing flight maps, sometimes following a more circuitous path. On March 18, Qatar Airways canceled more than 80 percent of its flights departing the Middle East, according to Cirium, an aviation analytics company. British Airways nixed 65 percent of its flights.
The changes can increase flight times, leading to higher fuel consumption. The cuts, meanwhile, can shrink capacity, pushing fares up to meet demand.
“Airline pricing is demand-driven, and the demand landscape is haywire because so much other airline seat inventory is offline for an indefinite period,” said Scott Laird, a travel expert.
Laird said U.S. travelers could see higher prices to Europe because passengers bound for Africa or South Asia are switching to flights connecting in Europe instead of the Middle East. In addition, Australians and New Zealanders who previously traveled to Europe through the Gulf region are connecting through the United States instead.
The new flight paths taken by people in the Southern Hemisphere, Laird said, “can drive prices higher for Americans shopping for flights to either destination” — Australia or New Zealand to the States or the U.S. to Europe.
The airlines, however, can’t raise fares relentlessly or they risk losing their customer base.
Jacquez, the policy and advocacy chief, said the ultra-budget airlines are more sensitive to price hikes because they rely on thrifty travelers to fill seats. The major carriers need to be careful, too. One wrong move and they could push their customers into the arms of another airline.
“If Delta raises its prices too much, then United might have an opportunity to undercut them and gain market share,” Keyes said. “It’s not as simple as just saying, ‘Well, our costs are higher, so fares are higher.’”
Don’t book the cheap seats and request a fare drop refund
The golden rule for securing a low fare is usually to book one to two months out for domestic air and three to six months in advance for international trips. But, travel experts say, that truism doesn’t apply during this tumultuous period. Some are even suggesting travelers lock in their flights for the rest of the year, in case prices jump further.
“That advice has gone out the window because we just don’t know what’s going to happen on ticket prices this year,” Henderson said.
Even if the war ends tomorrow and fuel prices drop, Jacquez said the refineries and supply chain will need time to rebound and right themselves. The oil industry could take months to return to its prewar flow.
Travel specialists do not recommend waiting for a resolution. If you want to book a flight — not just in the coming weeks but this summer, fall and even the winter holidays — let the search commence.
Set up travel alerts, say on Google Flights, that will buzz you when the fare on your preferred itinerary drops. If you have points, use them. If you need to change or cancel your flight, you can typically do so without sacrificing your miles or incurring a penalty. (Just watch out for those additional taxes and fees.)
Though it might seem counterintuitive, to save money, don’t book basic economy. If the airline lowers the fare, you can earn a credit for the price difference but only if you purchased a ticket in a category that allows changes — economy or above. You also need to book directly with the carrier.
Henderson has been testing apps that do the busy work for him. Paiback and Junova will track fare changes and collect the refund for a 20 percent cut. On an April trip to Miami, he reaped nearly $25.
Keyes prefers to keep his own eyes on the prize. This week, he booked a $300 flight to Colorado and is watching for it to drop.
“That’s a $100 discount on a future flight,” he said, hopefully.
The post Airfares are spiking. Here’s how to navigate the hikes. appeared first on Washington Post.
