As oil prices rise, airfares are surging and some airlines might not survive

Summer travel will be more expensive and some airlines may close as the war in Iran continues to drive up oil prices.

Airlines around the world have been grappling with rising jet fuel prices since the United States and Israel began bombing Iran late last month. Customers are already facing higher fees.

United Airlines Chief Executive Officer Scott Kirby said this week that his company could face losses of $11 billion if oil prices remain at current levels. Meanwhile, United’s airfares could increase by 20%, he said.

With thin profit margins and oil prices hovering around $100 per barrel, airlines have no choice but to pass this law. increasing costs on consumers.

Some airlines may not survive this blow.

Kirby compared the situation to the pandemic in 2020, when a global shutdown suppressed demand and travel.

“If these other guys make the same mistakes they made six years ago and the forecast around $175 a barrel is correct, you’re going to see the airlines not going to survive,” he said Tuesday.

Budget airlines are at higher risk because they have razor-thin margins and depend on high customer volume, said Alan Fyall, associate dean of the Rosen College of Hospitality Management at the University of Central Florida.

Low-cost airline Spirit, which filed for its second bankruptcy last year, cut several routes earlier this month.

“They are less resilient to these types of challenges,” Fyall said.

The impact will vary by airline, he added. Many airlines hedge their fuel to negotiate a fixed price and stockpile fuel while it is cheaper.

United Chief Commercial Officer Andrew Nocella said the company was prepared to face instability.

“We were prepared for shocks to our industry because they occur regularly,” he said.

“Just like gas stations, we will need to adjust pricing to reflect our fuel cost,” he said. “We feel really good about the future, even as we go through this period of high oil prices.”

Like auto fuel, jet fuel is more expensive in California.

Type A jet fuel cost $12.72 per gallon Friday at Los Angeles International Airport, according to Atlantic Aviation. The price per gallon at Denver International Airport was $9.73 and at Miami International Airport it was $11.73.

The average price of auto fuel in California on Friday was $5.84 per gallon, while the national average was $3.97. According to AAA.

The West Coast is a “fuel island” because it is not connected to the rest of the country by pipelines, which means all oil and refined products must be brought in by ships, Kirby said.

“The fuel price is more sensitive to supply weakness on the West Coast than elsewhere in the country,” Kirby said in an interview. “Prices are almost certain to be higher.”

Some flight routes from hubs such as San José and Burbank in California may be unavailable as airlines look to save money.

“Airlines will refuel wherever possible, from the cheapest source,” Fyall said. This may cause companies to avoid fueling in California whenever possible.

As global conflict continues and the industry braces for even higher fuel prices, United this week introduced a new product it hopes will help boost demand.

Coming to market next year, United Relax Row transforms a row of economy seats into a lie-flat area, ideal for families with young children.

Fyall said that even if ticket prices increase, “a significant percentage of the market is willing to pay for a high experience and high comfort.”