Airfares set to take off as fuel prices fly
Just like regular consumers at the gas station, airlines that fuel up in Los Angeles are having to adjust to higher prices at the pump.
Jet fuel prices have skyrocketed, and experts say plane tickets have increased as well.
As a busy summer travel season approaches, airlines are starting to pass costs on to passengers through higher fares and fees.
“Whenever there is an increase in oil prices, airlines immediately pass that on to consumers,” said Diego Bufquin, director of hospitality management and entrepreneurship at Tulane University. “It won’t take long.”
Airlines have been struggling around the world since the US and Israel began bombing Iran late last month. Flights must travel longer distances in war zones, and higher fuel costs eat into already thin profit margins.
Bufquin said jet fuel prices make up about a third of airlines’ operating costs, so “they can’t afford to wait to charge their customers more.”
United Airlines Chief Executive Scott Kirby he told CNBC He said the increase in fuel prices would have a “meaningful” impact on the airline’s financial results.
Some airlines outside the US have already added fuel surcharges to ticket fares. Air India announced Last week, there was a gradual increase in fuel surcharges on domestic and international flights. Hong Kong’s flag carrier airline, Cathay Pacific, announced that it will charge extra on all fares to cover fuel costs starting Wednesday.
Airlines that load at LAX and other regional airports are already being hit. Jet fuel prices in Los Angeles have risen more than 40 percent since the start of conflict in the Middle East.
Like the price of gasoline for cars, jet fuel is generally much more expensive in California than in other states.
California is largely isolated from the rest of the fuel distribution system. Due to limited pipeline connectivity, it relies more on sea delivery from other states and countries. California also has higher taxes on jet fuel than many other states.
National average gas prices reached $3.71 per gallon on Tuesday, according to AAA. The average in California on Tuesday was $5.52 per gallon.
Alan Fyall, associate dean of the University of Central Florida’s Rosen College of Hospitality Management, said demand will likely remain strong in the spring and summer months, even if prices rise.
“Wages are rising, but domestic demand is still there,” Fyall said. “The only thing that really reduces demand is a recession.”
Airlines said consumers are booking earlier than usual to lock in lower prices for summer travel. Delta and American Airlines had some of their strongest single-day sales ever in March.
According to Bloomberg, Alaska Airlines Inc. “When prices went up, we saw an increase in demand,” Chief Executive Ben Minicucci said this week. “I think people took that initial: ‘Wow, if this is going to get crazy, I better book my ticket now before the fares go up.'”
He added that airlines and other industries will face more challenging conditions if fuel prices remain high for a long time.
According to the report, flight tickets have already started to increase. Consumer Price Indexfound that the airline wage index rose 1.4% in February compared to last year.
Fyall said the impact will vary by airline. Many airlines hedge their fuel to negotiate a fixed price and stockpile fuel while it is cheaper.
“Airlines that manage their fuel purchasing processes very well and provide very good risk protection can cover their price expenses quite well,” Fyall said.
Experts stated that jet fuel prices are more sensitive to economic factors than automobile fuel prices.
It’s not yet clear whether Californians will have to pay significantly higher airfares than their neighbors, but some intrastate flight routes may be temporarily unavailable, according to Bufquin. Airlines may cut shorter, less profitable routes as they try to save money.
“Budget airlines like Spirit and flights from smaller California hubs like Burbank, San José and Fresno are at risk of cancellation,” Bufquin said.
