Jet fuel prices have soared this year since an attack on Iran that began two months ago effectively closed the Strait of Hormuz. For now, airline executives say travelers are still flying and bills are increasingly being covered.
The price hike occurred just before spring break and is hurting airline profits this year. But booking trends show resilient consumers are prioritizing travel, and executives are optimistic about the peak summer demand month, which currently wanes in August. Questions remain about how well demand will hold up into the end of the year, as travelers tend to book less far in advance.
Airline ticket sales for travel agents in March rose 12% from a year earlier to $10.4 billion, with domestic trips up 5% and international flights up 1%, according to the Airlines Reporting Corporation.
Domestic economy ticket prices have increased 21% year-over-year to an average of $570, while premium seat prices have increased 17% to an average of $1,444 per trip, according to ARC data released April 16.
Despite the fare increases, “bookings have remained resilient amidst these changes, which is a positive sign.” jet blue airlines CEO Joanna Geraghty said on Tuesday’s earnings call.
Airline expectations
U.S. airlines are reporting rising costs, with the Iran war adding more than $6 billion to airline costs this year.
But JetBlue and major airlines told Wall Street this month that they expect customers to pay higher jet fuel costs by early 2027, if not by the end of this year. Airlines are cutting capacity to cut costs, which could push up airfares.
JetBlue on Tuesday expected second-quarter sales to rise as much as 11% from a year earlier, even though Geraghty called the impact of the war the industry’s biggest headwind since the coronavirus pandemic.
american airlines announced Thursday that it expects second-quarter sales to rise 13.5% to 16.5%.
“We’ve always worked very hard to manage our load factors and maintain load as we increase capacity,” American CEO Robert Isom said in an earnings call. “That would suggest that we are seeing real benefits in yields at this point.”
delta airlines and united airlinesAirlines, which account for most of the U.S. industry’s profits, were also optimistic about fare growth, especially as airlines rely on growth in seats like first class and premium economy, which can cost thousands of dollars more than economy class options.
Domestic-focused low-cost airlines, which tend to have fewer premium options, are struggling. A low-cost airline represented by the Value Airlines Association. frontier airlines The group announced Monday that it is seeking a $2.5 billion bailout from the Trump administration to cover rising fuel prices.
frontier is scheduled to brief Wall Street analysts next week on its outlook for this year, but it is likely to face questions about whether it can recoup its costs with lower average fares than its larger rivals.
Even if oil prices fall, it is unlikely to mean an immediate easing of jet fuel prices. This is because the product includes refining costs and transportation costs, and it takes time for these costs to be reflected.
“Fares may remain high, especially given that ticket prices have risen well below general inflation since coronavirus,” UBS aviation analyst Atul Maheswari said on Monday. “As such, we believe there is room for airfares to rise and remain high. This could drive significant revenue growth and margin expansion for airlines in 2027 once jet fuel prices ease. That said, we believe demand will need to stabilize for airlines to maintain prices next year.”
