United Airlines CEO Scott Kirby is preparing for the worst: a future where oil prices reach as high as $175 per barrel and stay above $100 until the end of 2027.
With the U.S.-Israel war on Iran now in its fourth week, the airline industry is staring down its biggest disruption since the pandemic as the global oil market suffers a supply shock.
This is the first major crisis the industry is facing since widely ending the practice of fuel hedging in 2024 and 2025, an insurance that can protect airlines from spikes in fuel costs.
Jet fuel—which accounts for more than 40%of airlines’ operating costs—have nearly doubled in the last three weeks, according to Argus Media. Kirby predicted in a letter to employees that if fuel prices remain high, they would add $11 billion to United’s annual costs.
It may spell doomsday for an industry that took four years to recover from the pandemic, but airline executives are remaining optimistic. The reason? This time, they’re prepared to pass on the costs to you.
The average price of a transcontinental flight has risen from $167 in late February to $414 in mid-March, according to a Deutsche Bank analysis. The strain is also being felt strongly on less-distant routes. A flight from New York to Santo Domingo, Dominican Republic, on budget airline JetBlue went from $166 to $566 in three weeks and is more than four times as expensive as it was a year earlier.
But demand remains strong as consumers have already swallowed a post-pandemic spike in airfares. The last 10 weeks have been the highest booked revenue weeks in United’s history, according to Kirby’s letter.
Similarly, Delta CEO Ed Bastian said that sales in the week before March 17 rose about 25% from a year prior. Five of Delta’s top 10 ticket sales days ever have happened since the war began. And he’s not too worried about fuel prices because Delta is in a “position of strength” to raise airfare, Business Insider reported. Delta also has its own oil refinery, which provides a “meaningful hedge,” he said.
To be sure, cancellations are coming, and routes will be slowed or ended like they were during the pandemic, said Martin Dresner, a professor of supply chain management at the University of Maryland.
Delta has halted certain routes, including flights from New York to Tel Aviv until May 31 and from Tel Aviv to New York until June 1. The restart of its Atlanta to Tel Aviv service has been delayed, with flights to Tel Aviv paused until August 4 and from Tel Aviv until August 5.
United is planning to trim some off-peak flights, such as redeyes as well as Tuesday, Wednesday, and Saturday trips during the second and third quarters. The airline is also halting service to Tel Aviv and Dubai due to the war.
“To be clear, nothing changes about our longer-term plans for aircraft deliveries or total capacity for 2027 and beyond, but there’s no point in burning cash in the near term on flying that just can’t absorb these fuel costs,” Kirby said in the letter to staff.
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