Jet fuel prices are rising as the war in the Middle East disrupts global oil supplies, putting pressure on airline costs as the busy summer travel season approaches.
Experts say it’s not a question of if airfares will rise, but when, for how long and by how much. The impact may be felt most on long-haul international routes, which consume much more fuel than shorter flights.
Some airlines outside the United States have announced fare increases or fuel surcharges in an effort to offset rising spending. In the United States, United Airlines CEO Scott Kirby recently warned that increases in airfares “will likely begin quickly” as rising fuel costs make their way through the industry.
The war is limiting oil exports and forcing major producers such as Kuwait, Saudi Arabia and Iraq to reduce production as shipments face increasing obstacles.
Iran has attacked commercial ships throughout the Persian Gulf and attacked oil infrastructure in Arab Gulf nations after attacks by the United States and Israel. The attacks have effectively stopped traffic through the Strait of Hormuz, a narrow passage through which about a fifth of the world’s oil supply passes.
Volatile crude oil prices that caused retail gasoline prices to rise sharply have had the same effect on the price of jet fuel. The average price in the United States hit $3.99 a gallon on Friday, down from $2.50 the day before the war began two weeks ago, according to the Argus US Jet Fuel Index. The index tracks the average price airlines pay for jet fuel at major U.S. airports.
Figures from the U.S. Department of Transportation’s Bureau of Transportation Statistics show that U.S. airlines paid about $2.36 per gallon for fuel in January, the most recent data available.
Some airlines are partially protected from sudden price increases through fuel hedging, a strategy that allows them to set fuel prices months or even years in advance. But not all airlines hedge, and those that do are typically only hedged for a portion of their fuel needs, meaning prolonged price increases can cause more airlines to raise fares.
“No one protects themselves anymore, and even if they do, covering the spread of crack is really difficult to do,” Kirby said at an event at Harvard last week. The crack spread is the difference between the price of crude oil and the price of products produced from it, such as gasoline.
Another factor for airlines: Airspace closures have required diverting flights around parts of the Middle East, which can mean longer routes, additional fuel consumption and higher operating costs.
Travelers can feel the impact in several ways.
Airlines can add or increase fuel surcharges, an additional fee common among non-U.S. airlines that is added to the base ticket price.
However, major US airlines do not charge a separate fuel surcharge. Instead, they incorporate fuel costs into the overall ticket price, meaning any increase is more likely to translate into a higher base fare for travelers, according to Tyler Hosford, chief security officer at global risk management firm International SOS.
Airlines can also adjust what they charge for premium add-ons, such as seat upgrades, seats with more legroom, checked bags or priority boarding, as another way to offset higher operating costs. For consumers, that means that even if the base fare doesn’t increase immediately, the total cost of a trip could still increase once additional fares and upgrades are taken into account.
If higher fuel prices persist, airlines could also adjust schedules or reduce certain routes, said Christopher Anderson, a professor at Cornell University’s business school whose research includes operations and information management in the hotel and airline industries.
It is difficult to predict exactly how much ticket prices could rise as a result of rising oil and fuel prices. Industry analysts say the impact of higher jet fuel costs may vary by route, airline and travel demand.
Fuel typically accounts for 20% to 25% of an airline’s operating costs, making it the second-largest expense after labor, according to Rob Britton, an associate professor of marketing at Georgetown University and a retired American Airlines executive. Therefore, a sharp increase in fuel prices can have a significant impact on airline budgets.
So far, most of the fuel surcharge and fare increases have come from airlines based in the Asia-Pacific region, but experts expect more airlines (especially those without fuel coverage) to follow suit if high jet fuel prices persist.
Hong Kong’s national airline Cathay Pacific said it would increase its fuel surcharge from Wednesday.
“The price of jet fuel has approximately doubled since March amid recent developments in the Middle East,” the airline said in a statement Thursday.
Other airlines with price increases or new surcharges include:
— Air France-KLM said round-trip economy fares on long-haul flights could increase by about 50 euros (about $57).
– Air India introduced fuel surcharges on Thursday on certain routes. After March 18, the airline says the surcharge will increase to $50 for all tickets to Europe, North America and Australia.
– Hong Kong Airlines increased fuel surcharges on several routes starting Thursday.
— FlySafair in South Africa announced a temporary fuel surcharge
Experts say travelers planning summer trips can limit the impact of rising airfares by booking early rather than waiting for last-minute deals.
Locking in ticket prices early, especially with flexible booking options that allow for changes, can help secure lower prices before airlines adjust fares further.
Hosford, director of security at International SOS, suggests travelers be flexible with travel dates, check fares at nearby airports and set alerts for price drops. He also recommends using frequent flyer miles or credit card points to book flights instead of waiting for a “perfect deal.”
“If you were going to spend cash on the flight but now you’re not going to, then it’s a good bailout deal,” he said.
