Get ready to pay more to fly.
The war in Iran has sent fuel prices surging. On Friday, spot prices for jet fuel were nearly $4 per gallon, up roughly 80% from a month ago, when they were hovering around $2.25. The price increases are a result of the just-begun war in Iran, which has caused shipping and production stoppages and delays.
At the same time, airlines are seeing higher demand than they were a year ago. Data from the International Air Transport Association (IATA) shows that during January, the number of airline passengers was up almost 4% year-over-year, while demand for air cargo was up 5.6%. On top of that, the war itself is causing some airlines to cancel flights or operations in the region, further constricting supply. In effect, supply is stymied, but demand remains high—ticket prices are likely to increase as a result.
Jet fuel prices have taken off in a similar way to gasoline and other petroleum products, and Americans are likely to feel the pain at the pump in short order—if they haven’t already. And, unfortunately, those increases in fuel prices are going to filter down to travelers, who will probably see increased airfare in the near future.
Traditionally, fuel costs amount to somewhere in the neighborhood of 20-30% of costs for carriers. Given the total increase in fuel costs, Reuters estimates that the cost to four big U.S. carriers—Delta, United, Southwest, and American—could amount to an extra $5.8 billion in aggregate if prices remain at current levels for the rest of the year.
While no airlines, or their respective leaders, have plainly said that they’re anticipating higher ticket prices for passengers, those increases seem to be waiting in the wings. And some are even alluding to it in public comments.
For instance, United Airlines CEO Scott Kirby, during a Thursday discussion at Harvard, said that he is anticipating higher fuel costs to affect the bottom line, and that the downstream effect on ticket prices would “probably start quick,” according to CNBC.
Airline stocks were down as of Friday afternoon, too. Delta shares were down around 4.25%, American was down 5.3%, United was down 3.75%, Southwest was down 6.5%, and Alaska Airlines was down 3.3%, too, as of 2:45 PM ET. That was significantly more than the broader market—the S&P 500 was down around 1%.
