Growing demand for air travel could see the cost of airfares soaring this spring and summer, according to some of the leading airline executives in the United States.
Bosses for some of the biggest carriers, including Delta Air Lines and American Airlines, said at a JPMorgan Chase investor conference on March 15 that they had witnessed an unprecedented demand for passenger bookings the previous week.
The surge in demand comes amid rising fuel expenses, which have been further exacerbated following Russia’s invasion of Ukraine.
Airline bosses warned investors that the average price for a gallon of jet fuel is expected to rise between 17 percent and 33 percent in the current quarter compared to the final three months of 2021, and between 47 percent and 72 percent compared to what they paid a year ago, CNN reported.
After labor costs, fuel is an airline’s second-largest expense. The majority of U.S. airlines do not hedge the cost of jet fuel, meaning they do not buy a certain amount of the fuel for a fixed price to avoid the volatility of oil prices, something that many European airlines do to reduce fuel prices in the short term.
In an effort to offset the rising fuel costs, U.S. airlines plan to utilize the unprecedented air travel demand to pass the higher costs onto consumers.
“We’re seeing an increase in demand that is really unprecedented,” said Delta President Glen Hauenstein. “I have never seen … demand turn on so quickly as it has after Omicron.”
Hauenstein said Atlanta-based Delta Air Lines needs “to recapture somewhere between $15 and $20 each way on an average ticket value of about $200,” which is equivalent to a price hike of 7.5 percent to 10 percent, adding that the company feels confident that passengers will be willing to splash out on the higher-priced tickets, Financial Times reported.
“It’s really been the strong demand and better pricing environment … [that has] allowed us to more than offset the fuel cost,” Hauenstein said.
Delta CEO Ed Bastian told Financial Times on March 15 that higher fuel costs would “no question” lead to fare hikes both domestically and internationally, adding that the airline would add a fuel surcharge to international flights as “market conditions permit.”
American Airlines CEO Doug Parker said on March 15 that “demand is higher than it’s ever been” for domestic travel and that overall bookings are “incredibly strong,” adding that the airline experienced three days of record ticket sales the previous week.
United Airlines Chief Commercial Officer Andrew Nocella said there had also been a spike in demand, noting that “bookings across most of the network are at normal levels.”
Nocella said United expects to be able to offset a “large chunk” of its increased fuel costs by raising customer fares and reducing its flight schedule.
Southwest Airlines Chief Financial Officer Tammy Romo said the company began increasing airline fees across its network in early February, and demand for bookings has remained consistent.
Meanwhile, JetBlue CEO Robin Hayes said the airline had also seen an increased demand for bookings between the United States and the United Kingdom, pointing to a “spectacular” rebound, Reuters reported.
The planned rise in ticket prices comes as jet fuel prices ended last week about 80 percent higher than a year ago, according to the International Air Transport Association, although that figure is still down from its previous peak shortly after Russia’s invasion of Ukraine.
However, airlines had already begun raising fare prices before the war in Ukraine pushed the price of oil to above $100 a barrel.
American Airlines CEO Doug Parker said high oil prices shouldn’t prevent airlines from making a profit.
“We can make money at oil prices of $100 a barrel or higher, and we will,” he said.