Jet fuel prices are rising as war in the Middle East disrupts global oil supplies, putting cost pressure on airlines as the busy summer travel season approaches.
Experts say that it is not a question of if the tickets will increase, but when, for how long and how much. The impact can be felt most on long-haul international routes, which burn significantly more fuel than shorter flights.
Some airlines outside the US have announced fare increases or fuel surcharges in an effort to offset rising costs.
In the US, United Airlines CEO Scott Kirby recently warned that airfare hikes “will probably start soon” as rising fuel costs work their way through the industry.
Why are jet fuel prices rising?
The war is restricting oil exports and prompting major producers such as Kuwait, Saudi Arabia and Iraq to cut output as shipments face mounting bottlenecks.
Iran has attacked merchant shipping across the Persian Gulf and targeted oil infrastructure in Gulf Arab states following attacks by the US and Israel. The attacks have effectively halted traffic through the Strait of Hormuz, a narrow passage that carries about a fifth of the world’s oil supply.
Volatile crude oil prices that have caused retail gasoline prices to fluctuate significantly have had the same effect on the price of jet fuel. The average US price hit $3.99 a gallon on Friday, up from $2.50 a day before the war two weeks ago, according to the Argus US Jet Fuel Index. The index tracks the average price airlines pay for jet fuel at major US airports.
Figures from the U.S. Department of Transportation’s Bureau of Transportation Statistics show that U.S. airlines paid about $2.36 a gallon for fuel in January, the most recent data available.
What does it mean for airlines?
Some airlines are partially protected from sudden price increases through fuel hedging, a strategy that allows them to lock in fuel prices months or even years in advance. But not all airlines hedge, and those that do usually hedge only a portion of their fuel needs, meaning prolonged price increases could lead to more carriers raising fares.
“Nobody hedges anymore, and even if you do, crack propagation hedges are really hard to do,” Kirby said at an event at Harvard last week. The spread is the difference between the price of crude oil and the price of products made from it, such as gasoline.
Another factor for airlines: Airspace closures have required rerouting flights around parts of the Middle East, which can mean longer routes, extra fuel burn and higher operating costs.
What does it mean for travelers?
Travelers can feel the impact in several ways.
Airlines may add or increase fuel surcharges, a common surcharge among non-US carriers that is added on top of the base ticket price.
Major US carriers, however, do not charge a separate fuel surcharge. Instead, they build fuel costs into the overall ticket price, meaning any increase is more likely to show up as a higher base fare for travelers, according to Tyler Hosford, director of security at global risk management firm International SOS.
Airlines can also adjust what they ask for premium extras — such as seat upgrades, extra legroom, checked baggage or priority boarding — as another way to offset higher operating costs. For consumers, this means that even if the base fare doesn’t go up immediately, the total cost of a trip could rise again after additional fees and upgrades are factored in.
If higher fuel prices persist, airlines may 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 hospitality and airline industries.
How high can airfares go up?
It is difficult to predict exactly how much ticket prices may increase as a result of more expensive diesel and fuel. Industry analysts say the impact of higher jet fuel costs can 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, a Georgetown University marketing professor and retired American Airlines executive. Therefore, a sharp increase in fuel prices can have a big impact on airline budgets.
Which airlines have announced price increases?
So far, most fare increases and fuel surcharges have come from airlines based in the Asia-Pacific region, but experts expect more airlines — especially those without fuel protection — to follow if high jet fuel prices continue.
Hong Kong’s flagship carrier, Cathay Pacific, said it will increase its fuel surcharge starting Wednesday.
“The price of jet fuel has roughly doubled since March amid recent developments in the Middle East,” the airline said in a statement on Thursday.
Other airlines with price increases or new surcharges include:
— Air France-KLM said round-trip economy fares on long-haul flights could rise by about 50 euros (about $57).— Air India introduced fuel charges 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 some routes from Thursday.— FlySafair in South Africa announced a temporary fuel surcharge
What can travelers do to cut costs?
Experts say travelers planning summer trips may be able to limit the impact of rising airfares by booking earlier rather than waiting for last-minute deals.
Locking in ticket prices sooner — 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 stay flexible with travel dates, check fares at nearby airports and set price-goal alerts. He also recommends using frequent flyer miles or credit card points to book flights instead of holding out for a “perfect deal.”
“If you were going to spend money on flying but now you don’t, then this is a good redemption deal,” he said.
By RIO YAMAT AP Airlines and Travel Writer
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