The price of jet fuel has doubled since the Iran war began two weeks ago, as disruptions in vital shipping lanes limit the global trade of crude and refined oil. The airlines that run on it are racing to keep up. Jet fuel alone accounts for somewhere between 25 and 35 percent of airlines’ costs. The next stop is higher ticket prices.
It’s already happening, to some degree. Several airlines, including Air Asia and Hong Kong Airlines, have explicitly said they’re adding to their usual fuel surcharges. Domestic US ticket prices are up (though they were rising before the war, too.) “When [oil price] goes up this rapidly, airfares go up,” United Airlines Chief Executive Officer Scott Kirby told The Wall Street Journal this week. “They also come down, by the way, when fuel goes back down.”
Because no one has a crystal ball, what this all means for travelers is up in the air. Travel and airline industry experts say it’ll take several more weeks of conflict and high fuel prices to really begin reshaping the economics of travel—or to know, even, whether it’s happening. Airlines set initial schedules, routes, and ticket prices months out, which means the money they’re losing today to high costs might only be recouped through ticket sales for flights well into the future.
Here’s what’s likely going on behind the scenes at airlines that will decide whether high fuel prices translate into scrambled travel plans.
Travel vs. Leisure
For now, airlines are likely tinkering around the edges of operations and ticketing plans, says Ahmed Abdelghany, who studies airline operations as a professor in Embry-Riddle Aeronautical University’s College of Business. Some of these changes likely won’t be perceptible to the average flyer. To make flights more fuel efficient, for example, and less expensive to operate, airlines have likely already gotten careful about how much fuel is being carried on each flight, he says—less weight, less fuel burned. Upping ticket prices is an easier lift logistically for airlines, but not an automatic move.
“We say the airlines have three devils: volatility in fuel price, volatility in demand, and volatility in weather,” Abdelghany says. “For airlines to raise the fare, it’s not an easy decision, because it’s going to affect demand.”
In fact, many airlines could shield regular vacationers from the brunt of price spikes, initially, because they believe some demand will stick around despite high fares. Since the disruptions that came with the Covid-19 pandemic, several major airlines have rejiggered their business models to focus on business flyers, who tend to be less price-sensitive as they travel on the company dime. “There’s more focus on premium travelers and increased upselling, as opposed to a model that was more domestically-focused and had a larger share of business from the main cabin,” says Jarrett Bilous, the managing director for transportation, aerospace, and defense at S&P Global Ratings. Airlines could choose to pass on higher prices to spendier passengers first.
The tickets less affected by price hikes in the shorter term, then, might be the ones more likely to have leisure travelers aboard: trips that start and end on weekends, or last two weeks instead of a handful of days (which reads “business trip”).
But there’s no guarantee that airlines will stick to that strategy if the high fuel prices drag on, Bilous says. The newer theories about sustainable business traveler demand haven’t been tested during a real financial squeeze. “We really haven’t had either a sustained demand downturn or a price shock in quite some time,” he says.
A New World
If the jet fuel price shock continues for weeks or even months, bigger changes—and inconveniences—might be headed to an airline near you. Airlines might cut their schedules, targeting less-profitable routes to start. (They could also nix flights that pass through the unsettled airspace around the ever-widening conflict.)
During the last major and sustained fuel shock in 2008, airlines charged for checked and eventually carry-on bags. Though the aviation business has changed since then, it’s possible airlines could once again start experimenting with new ways to make extra money off flyers. “New ancillary revenues, fees, charges, maybe lowering the maximum weight of check-in bags—it’s possible,” Abdelghany says. But these sorts of new systems would take a while to implement.
Bilous, the analyst, stopped short of offering ticket-buying advice. “The risk of higher prices has certainly grown versus a few weeks ago,” he says. “Just how much higher, if at all, they go, it remains to be seen.”
The post Higher Jet Fuel Prices Could Melt Your Summer Travel Plans appeared first on Wired.
