Jet fuel prices are rising as war in the Middle East disrupts global fuel supplies, putting cost pressure on airlines as the busy summer travel season approaches.
Experts say it’s not a question of whether airfares will rise, but when, for how long and by how much. The impact can be felt on long-haul international routes, which burn significantly more fuel than short-haul flights.
Some airlines outside the United States have announced fare increases or fuel surcharges in an attempt to offset the rising cost. In the United States, American Airlines CEO Scott Kirby recently warned that airfare hikes “will probably start soon” as fuel costs work their way through the industry.
The war is limiting oil exports and prompting major producers such as Kuwait, Saudi Arabia and Iraq to cut production as shipments face increasing disruptions.
After the US and Israeli attacks, Iran has attacked commercial ships in the Persian Gulf and targeted oil infrastructure in the Arab countries of the Gulf. The attacks have effectively blocked navigation through the Strait of Hormuz, a narrow passage that transports about one-fifth of the world’s oil.
Volatile crude oil prices causing retail petrol prices to rise sharply have had a similar impact on jet fuel prices. The average price in the U.S. hit $3.99 a gallon on Friday, up from $2.50 a day before the conflict began two weeks ago, according to the Argus U.S. Jet Fuel Index. The index tracks the average price airlines pay for jet fuel at major U.S. airports.
U.S. airlines paid about $2.36 per gallon of fuel in January, the most recent data available, data from the U.S. Department of Transportation’s Bureau of Transportation Statistics show.
Some airlines are partially protected against unexpected fuel prices by 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 only hedge for a portion of their fuel needs, meaning long-term price increases may cause many carriers to raise fares.
“No one hedges anymore, and even if you do, it’s really difficult to prevent the spread of crack,” Kirby said at a Harvard conference last week. The crack 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: Airport closures require rerouting flights around parts of the Middle East, which means longer routes, extra fuel burn and higher operating costs.
Passengers may feel the impact in several ways.
Airlines can add or increase fuel surcharges, an additional fee common among carriers outside the United States that is added on top of the base ticket price.
However, major US carriers do not charge a separate fuel surcharge. Instead, they build fuel costs into the overall ticket price, meaning any increase is reflected as a higher base fare for passengers, according to Taylor Hosford, director of global risk management firm Global SOS Security.
Airlines can also adjust what they charge for premium add-ons — such as seat upgrades, extra legroom seats, checked bags 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 the trip can still go up when additional fees and upgrades are included.
If high fuel prices continue, airlines may also adjust schedules or cut some routes, said Christopher Anderson, a Cornell University business school professor whose research includes operations and information management in the hospitality and airline industries.
It is difficult to predict exactly how much ticket prices will rise as a result of oil and gas prices. Industry analysts say the impact of higher jet fuel costs can vary based on route, airline and travel demand.
According to Rob Burton, a marketing professor at Georgetown University and a retired American Airlines executive, fuel typically accounts for 20% to 25% of an airline’s operating costs, making it the second largest expense after labor. Therefore, a sharp rise in fuel prices can have a major impact on airlines’ budgets.
So far, most of the fare increases and fuel surcharges have come from airlines based in the Asia-Pacific region, but experts expect other airlines — especially those without fuel hedging — to follow if high jet fuel prices continue.
Hong Kong flag carrier Cathay Pacific said it will raise fuel prices starting Wednesday.
“Jet fuel prices have nearly 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 for long-haul flights may increase by around 50 euros (about $57).
– Air India introduced fuel prices on some routes on Thursday. After March 18, the carrier says the surcharge will increase to $50 for all tickets to Europe, North America and Australia.
– Hong Kong Airlines increased fuel prices on several routes on Thursday.
– FlySafair in South Africa has announced a temporary fuel surcharge
Travelers planning summer trips can limit the impact of overbooked flights by booking in advance instead of waiting for last-minute deals, experts say.
Locking in ticket prices early — especially with flexible booking options that allow for changes — can help secure lower prices before airlines adjust prices further.
Hosford, director of security at International SOS, recommends travelers stay flexible with travel dates, check fares at nearby airports and set up alerts for price drops. He also recommends using frequent flyer miles or credit card points to book flights instead of holding out for the “perfect deal.”
“If you’re spending money on a flight but you’re not now, this is a great deal to get rid of,” he said.
