It's official: Flights are about to get more expensive to offset spiking jet fuel prices
Book your summer travel now: flights are about to get more expensive.
With gasoline and jet fuel prices soaring — even as crude oil slides back down — the higher expenses faced by U.S. airlines will soon begin to reflect in the price of tickets.
That was the big consumer takeaway on Tuesday from the JP Morgan Industrials Conference, where the major U.S. airlines shared financial insights and projections for the first time since the Russian invasion of Ukraine caused oil prices around the world to become highly volatile.
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"We need to recapture somewhere between $15-20 each way on a ticket," Delta president Glen Hauenstein said, noting that that price represents less than 10% of the average fare. "We feel very confident that we will capture it in the second quarter."
United chief commercial officer Andrew Nocella similarly said that the airline needed TRASM — or total revenue per available seat mile, a metric airlines use to judge revenue efficiency — to increase "in the magnitude of the high single digits."
In addition to higher fares, Nocella noted that the airline had opportunities to recoup costs through ancillary sales, such as upselling coach passengers to premium seats.
Hauenstein noted that fuel surcharges on international tickets also were a possibility, but said that — for the most part — passing on of higher fuel prices to consumers would mostly come in the form of higher base fares.
Typically, it takes 60 to 90 days for higher fuel prices to reflect in airfares, Hauenstein said, but surging travel demand coupled with a shorter booking curve — more people booking close-in travel — means that the increases could be implemented more quickly.
The rapid improvement in travel demand following the most recent COVID-19 wave was a theme among all of the carriers at the conference. A recent data analysis by Adobe found that consumers spent more money for domestic flights in February than they did in the same month of 2019. It was the first time during the pandemic that month-over-month spending compared to 2019 was higher.
"Demand is higher than it's ever been," American Airlines' retiring CEO Doug Parker said. Last week, according to Parker, the airline had three consecutive days during which revenue from new ticket sales set new daily records for the airline.
"The bookings right now are just incredibly strong," Parker said, even though business travel and long-haul international travel remain well below 2019 levels. Parker said that improving revenues would offset higher fuel costs.
"Really unprecedented demand," United chief operating officer Andrew Nocella agreed.
Southwest chief financial officer Tammy Romo, meanwhile, celebrated the fact that the airline hedges some of its fuel needs, unlike the other major airlines. Still, the airline increased fares in early February, and even with the hedging could increase fares again based on fuel prices and demand.
"Demand is key in terms of ultimately what the market will bear in terms of pricing," she said. "When you think about pricing, that's more a function of what customers will pay."
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The airlines also all released slightly lower capacity plans for the coming months, generally nearing the lower end of their forecasts for the current quarter. The airlines mostly cited fuel costs, leading them to reduce some routes or frequencies which would see tight profit margins potentially evaporate due to the higher costs.
Fuel is typically the second-highest cost for airlines, after labor, and can represent up to about one-third of operating expenses.
Even before fuel prices started to climb at the current rate, the threat of inflation had already led analysts to predict rising airfares through the summer.
With prices set to soar, now might be the time to lock in spring and summer travel plans, if you can plan in advance. Despite overall volatility through the economy recently, one thing is for certain: flights aren't getting any cheaper.