The cost of fuel for aircraft has almost doubled due to the war in Iran, leading to significant increases in ticket prices. However, analysts estimate that airlines will not reduce fares even if fuel prices decline. United CEOs, Scott Kirby, and American Airlines, Robert Isom, confirmed on Wednesday and Thursday respectively that passengers are already paying 20% more per mile, while reservations remain at high levels. Southwest CEO Andrew Waterson reported five ticket increases this year. This attitude led to criticism by Members such as Richie Torres, who denounced the «corporate greed».
Analyticalally:
The rapid increase in fuel costs for aircraft due to the war in Iran will lead to significantly higher air ticket prices. However, analysts estimate that and to reduce fuel prices from a possible future release of the crisis, airlines will not reduce ticket prices once fuel prices begin to decrease.
The highest ticket prices are due both to intense demand for travel and fuel costs. Despite higher ticket prices, travelers make ticket reservations in record numbers to many airlines. Thus, as long as passengers continue to fly, higher prices are likely to remain in force, regardless of fuel costs.
«The more consumers pay these prices and airlines get used to this revenue flow, the more likely it is (to be maintained)», United CEO Scott Kirby told CNN during the announcement of the results Wednesday. Airport passengers now pay an average of 20% more for each mile they fly than last year.
When asked about maintaining higher fares when fuel prices are normalized, American Airlines CEO Robert Isom said customers are already willing to pay more for things such as extra space for legs or seats closer to front passengers.
«I'm optimistic about what this means to our business.», Isom told analysts Thursday.
He said summer reservations remained strong, even when the airline increased ticket prices.
«I think what you see is the recognition that travel is still a good offer», Isom said.
Double the cost of fuel for airlines
The fuel price for jet aircraft, which has almost doubled since the beginning of the year, is an important factor behind the extensive increases in fares. Fuel is the second largest operating cost for airlines after the workforce.
The four largest carriers in the US – United, American, Delta and Southwest – averaged a total of $100 million a day in fuel last year. And this at a time of relatively cheap oil and fuel costs.
Today, they pay billions more. Delta said it faced a $2 billion increase in fuel costs only in the current quarter.
The airlines transfer part of the cost to consumers. Recent results show that they already charge passengers 20% more for every mile they travel compared to a year ago, and prices are forecast to increase even more.
Southwest Airlines CEO Andrew Waterson told investors Thursday that five ticket increases have already been made throughout the sector so far, and there are expected to be others. And all airlines say they have recovered only part of their increased cost.
Prices not only concern costs
However, fares are not based on the cost of operating a flight, said Jacques Griff, author of an airline's newsletter, From the Tray Table.
On the contrary, the price is determined mainly by demand — for a specific route, time of day or week and the size of competition.
For example, redeye flights in the middle of the week or night flights are usually cheaper than peak hours on the same route as Friday afternoon. And passengers often pay much less for every mile that travels on popular long-distance flights between major cities, such as New York and Los Angeles, compared to smaller routes with less demand.
The airlines reduce some of these less profitable flights, which have become injurious amid higher fuel prices. United, for example, has reduced its previously planned program by about 5% by September. The abolition of these affordable fares also increases the average price of the ticket.
But as travelers still make ticket reservations, airlines know they can maintain higher prices on their remaining flights.
«The fare environment will eventually be based on market conditions», said Watterson of Southwest.
Whatever the opinion of investors and analysts on the attempt of airlines to maintain fare increases, even if fuel prices fall, the idea has provoked public criticism.
Congressman Richie Torres, a Democrat from New York City, sent a letter to Kirby, United after his statements.
«United plans openly to put in pocket a significant share of any fuel savings rather than pass it on to passengers»Torres wrote. «Daily Americans, many of whom have already exhausted air travel prices, deserve better than this level of corporate greed».
Source: OT
