Fuel Prices Rise. Airfare Next?

After an extended period of tranquility stretching several years, fuel prices are on the rise. Will that soon lead to higher airfare?

USA Today reports during the first nine months of the year:

• American Airlines said Thursday that aircraft fuel and related taxes were up nearly 20% to nearly $4.5 billion.

• Delta Air Lines said Oct. 11 that aircraft fuel and related taxes were up 9% to $4.2 billion.

• JetBlue Airways said Tuesday that fuel and related taxes were up 27% to $994 million.

• Southwest Airlines said Thursday fuel and oil costs were up 8% to $2.9 billion.

• United Airlines said Oct. 19 that fuel cost was up 18% to $5 billion.

Why are some up only 8-9% while others are up 20-27%? One, hedging (a process of buying fuel speculatively in advance). Two, in the case of Delta, it has it own refinery.

American CEO Doug Parker warned–

Fuel spikes could have an impact. But if it’s just increases, given where we are, I think what you see is fares rise to levels to offset much of the fuel price increase.

Whatever that means, Parker assured us that American Airlines would never lose money again.

Keep in mind that even if airfare rises slightly, there is still a lot of room to grow. Fares averaged $356 during the 2nd Quarter of this year. That’s the lowest since 2009, when we were in the midst of the Great Recession.

CONCLUSION

I don’t predict any dramatic spikes in airfare related to fuel on the near horizon. But airlines will be quick to pass on increased fuel costs to the consumer, as they have always done.