Airlines just can’t seem to catch a break, but then again, that’s nothing new for the industry.
In this post:
Airlines brace for impact of more expensive jet fuel
The current conflict involving Iran obviously has major geopolitical implications. As it impacts the aviation industry, many airlines have had to adjust their networks to avoid a lot of airspace in the Middle East, which has caused chaos for airlines. For that matter, many people are pushing off their trips, given all the uncertainty.
However, arguably there’s one reality that airlines are most having to come to terms with as a result of what’s happening, and that’s higher jet fuel prices. According to the Argus US Jet Fuel Index, in recent weeks we’ve seen the cost of jet fuel go from just over $2 per gallon, to around $4 per gallon. Suffice it to say that doubling fuel costs has major implications for airlines, as it’s the second biggest expense, after labor.
Back in the day, most US airlines would hedge the price of jet fuel, to avoid the uncertainty. However, that’s not a practice that any US carrier meaningfully engages in anymore, as they’ve found it to be too costly and unreliable.
For context on the amounts we’re talking about, in 2025, United had $59 billion in revenue, while jet fuel expenses were over $11 billion. The company had a net profit of just over $3 billion, so even a roughly 25% increase in oil prices would more or less wipe out the carrier’s profits, assuming all else remains equal.
Reuters reports that a one cent per gallon increase in the cost of jet fuel would cost Southwest $22 million per year, Delta $40 million per year, and American $50 million per year.
United CEO Scott Kirby has already said that a spike in the cost of jet fuel will have a “meaningful” impact on the carrier’s profitability, and that increases in airfare will “probably start quick.”
As you’d expect, airline stocks have really struggled in recent weeks. For example, over the past month, American’s stock is down over 27%, while United’s stock is down over 21%. That’s not ideal.
How bad will this situation get for airlines?
It’s anyone’s guess how long this conflict goes on for, and how long the increased oil prices stick around. It’s possible that this is a fairly temporary thing, while it’s possible that this is a new normal that will last for many months.
To state the obvious, if these jet fuel prices are sustained, this is going to be a very rough reality for airlines. Even the most profitable airlines will be struggling to stay in the green, while unprofitable airlines will be losing even more money. This would very much create a situation where basically everyone except the few profitable airlines could be looking at unsustainable losses. Sounds like a great opportunity for United to swoop in and “save” JetBlue, right? 😉
Of course the narrative above from United’s CEO is that airfare will be increased in order to reflect higher oil prices. However, that’s easier said than done. Airlines ultimately price tickets not based on their costs, but rather based on what consumers are willing to pay, in order to fill as many seats as possible.
Airlines aren’t just dealing with higher oil prices, but they’re also potentially dealing with broader economic issues. After all, higher oil prices lead to higher costs across the board, which reduces disposable income, and in turn, demand for flights.
Once certainly has to hope that there will be a positive resolution to this conflict soon, and that something is figured out on the oil front, or else airlines are going to be facing their biggest challenge since the start of the pandemic.
Bottom line
Jet fuel prices are increasing at the moment, and that’s something airlines struggle to deal with, given what a low margin industry it is. While airlines may try to increase ticket prices to recoup costs, that’s easier said than done when they have so many seats to fill, and maximizing revenue is the name of the game.
How do you see this jet fuel price situation playing out for airlines?
Lucky that I bought a nonstop tkt from EWR-Switzerland R/T last Friday, for travel 18-24 March, and got a fare of $3600 in Polaris. Regardless, I hope this military operation will end sooner than later. Not super optimistic this will be the case, but at some point it will!
We could go se this as an opportunity to break up pilots unions and allow European pilots to fly in the U.S.! It wouldn’t fix the problem completely but would offset costs and continue to support the U.S. economy. It seems like one of the things Trump might actually be able to use his bully pulpit to do
I don’t think MAGA is anti-working man, or anti-USA born labor so not likely until another auto-pen Biden type rolls around not cognizant of what his staff is doing.
One of the first casualties of rising fuel prices are ideologies which don’t lead to greater amounts of efficiency. TWA’s and Pan Am’s colors were red or blue (completely 100% unrelated to the politics of this generations mind rot) for a reason; unlike Braniff’s flying colors. Southwest was likewise all 737 and open seating. People Express sold box lunches. America Delta and United and their merger partners retired fleet types… and extended the life spans...
One of the first casualties of rising fuel prices are ideologies which don’t lead to greater amounts of efficiency. TWA’s and Pan Am’s colors were red or blue (completely 100% unrelated to the politics of this generations mind rot) for a reason; unlike Braniff’s flying colors. Southwest was likewise all 737 and open seating. People Express sold box lunches. America Delta and United and their merger partners retired fleet types… and extended the life spans off others, or repurposed mid range planes to longer haul routes. Airlines within airline brands were discontinued. The one thing different here is: these fuel price spikes are logically expected to be short term rather than long term. Today’s times are far different than the manipulatively speculative atmosphere that panicked the nation in late 2007-8 as the low information voter type longed for anyone but a Presidential name dynasty. Thus allowing the Manchurian candidate Hussein O to triumph with his stick it to whitey and not be challenged cause for you to do so means you are anti-chocolate and apartheid. And so paving the way to where we were just a few short years ago.
The airlines are in for a rude awakening. Passengers will simply stay home or downgrade to PE instead of J. There is no way they can recoup the cost of a huge spike in fuel. Airlines are running out of room to devalue their miles more to cover it. The only way to protect their profits will be to dust off their knee pads.
Why the increase? So they stopped hedging?
Please read the post.
PA system: “Cleanup on aisle 47! Can we please get a cleanup on aisle 47?!”
Ben, would love your speculation on how quickly this might lead to better award availability? Airlines try to raise prices to offset fuel (and risk losing volume) or even if they dont, consumers have less discretionary income from gas/other things costing more....
Seems like award availability is one way to keep the butts in seats and either get some revenue (from partners) or reduce liability (if their own miles). Which airline blinks first? Maybe I'm...
Ben, would love your speculation on how quickly this might lead to better award availability? Airlines try to raise prices to offset fuel (and risk losing volume) or even if they dont, consumers have less discretionary income from gas/other things costing more....
Seems like award availability is one way to keep the butts in seats and either get some revenue (from partners) or reduce liability (if their own miles). Which airline blinks first? Maybe I'm just being hopeful.
I'm not Ben but there is NO WAY airlines are going to keep planes in the sky for reward redemptions. Whatever partner income would never come close to the money lost on flying around half empty planes with higher fuel prices.
If they don't park the planes, airlines absolutely will fill seats with awards as a last resort to pick up marginal revenue.
As with air, fuel is one of the biggest expenses for railroads behind labor. Tangential to the usual air travel focus of this blog, but most commuter rail agencies that are run by JPBs can’t raise fares without action from said board and often supporting local governments. This will eat into their cash reserves too. Amtrak on the other hand can (and does) charge what they want.
Wonder if the freight railroads will start imposing...
As with air, fuel is one of the biggest expenses for railroads behind labor. Tangential to the usual air travel focus of this blog, but most commuter rail agencies that are run by JPBs can’t raise fares without action from said board and often supporting local governments. This will eat into their cash reserves too. Amtrak on the other hand can (and does) charge what they want.
Wonder if the freight railroads will start imposing a fuel surcharge but leverage the opportunity to get some business away from long haul trucking.
I still hope for a quick end to this fiasco.
It's the best thing that has ever happened. The world was becoming too overdependant on renewable and clean energy and that was harming our oil industry. The sooner the world realise that the only good source of energy is oil, the better it is.
The fact that Trump has secured oil in Venezuela and soon to be Iran and the Middle East, the better position that we'll ensure that we continue our rightful supremacy in the world.
lol
Oh no… “but, but, the price of eggs!” How could the “Bored of Peace” and “No new wars” President do this! 241 days until midterms…
Talk about lucky timing for Spirit’s financing
THIS IS NOT HOW AIRLINE FARES WORK!!!!
Airfare is based on market pricing. Airlines are only able to charge what the market is willing to pay. If their labor costs or airport fees or gas prices go up, it doesn't mean that people are willing to pay more for a ticket. On the other hand, even if fuel prices go down, airlines are still going to try to get as much money out of...
THIS IS NOT HOW AIRLINE FARES WORK!!!!
Airfare is based on market pricing. Airlines are only able to charge what the market is willing to pay. If their labor costs or airport fees or gas prices go up, it doesn't mean that people are willing to pay more for a ticket. On the other hand, even if fuel prices go down, airlines are still going to try to get as much money out of every passenger as they can.
These coordinated annoucements about fuel prices are a PR strategy from airlines. It is an attempt to manipulate consumers into being willing to pay higher prices. They are trying to say "hey, fuel costs are going up, therefore we are going to try to raise our prices and we hope consumers will still buy tickets"
So it's a PR stunt that their second largest expense nearly doubled in the last month and they're increasing prices to counter some of it? They won't be able to increase enough to recoup all of the added expenses. Just as many goods prices increased because of tariffs, airfare will increase because of fuel.
@ Tom is correct. Remember when airlines lost money constantly? Well, its going to happen again if fuel stays high. It will be the best thing thay ever happened to the airlines, since they will all cry for bailout money. I'm sure Delta will be at the front of the line.
Unless this fake war ends soon, which doesn't look like it, you will see routes cut, older planes parked and crew/staff furloughed. The struggling ULCCs are really going to be in real trouble. Gas going to $4 to $5 gallon doesn't crimp my lifestyle all that much but there many Americans it's going to be bite out of their pocket. The kind that work in a grocery store and can't "laptop it in." The part of the population that flys ULCCs.
“fake war” … George Nathan Romey, do better.
If is a fake war. Only Congress can declare war. Look up that real fact. It's a fake war by a fake Department of War.
The average person MAY pull back. But people are about to be flush with tax refunds so Q2 & Q3 are about to be robust with consumer spending imo.
Again. The American president chose to do this.
Nah, Netanyahu is playing the feeble-minded Tango like a cheap fiddle.
Unc, does that make this better or worse? Like, is having a cuck and/or a fool as a president a good thing?
A very cheap fiddle, but what does anyone expect from a functionally illiterate buffoon.
So on the one hand, Trump is a Nazi, a dictator and a reincarnation of Hitler. Then the narrative becomes he is so weak and feeble that Netanyahu pulls his strings like a puppet.
Which is it libs?
Considering how elastic demand for air travel is (including for business these days, so spare us your Grok-prompt opinions), airlines are welcome to increase their prices, but flyers - including those in the front cabins - are equally welcome to pull back and pull back HARD on plane travel, and they absolutely will. All because of a war/not war for reasons/no reasons started by the fat orange Nazi at 1600 Pennsylvania avenue and his clown...
Considering how elastic demand for air travel is (including for business these days, so spare us your Grok-prompt opinions), airlines are welcome to increase their prices, but flyers - including those in the front cabins - are equally welcome to pull back and pull back HARD on plane travel, and they absolutely will. All because of a war/not war for reasons/no reasons started by the fat orange Nazi at 1600 Pennsylvania avenue and his clown cars (buses?) of corruption.
As the markets continue to dip/dive, those 401(k)s continue to dip/dive with them, and those with retirement accounts that ballooned are in for a rude awakening. It'll be fun seeing influencers in their parents' backyards posting from their above-ground pools. It's not Bali, but it's something.
The soggy croissant that fell off their floating breakfast is gonna taste the same in Iowa as it does in the Maldives.
Tim, I swear to dog, I was going to mention a floating breakfast tray and decided not to, so thank you for that!
Great minds DO think alike, don’t they?
It was a given that a week's worth of high fuel prices would negatively impact airlines. I said earlier this week that this could be the end of the high-flying post covid era and potentially send some airlines into chapter 11 and keep others there.
The west coast is the most susceptible to higher fuel prices because there have been several refineries and pipelines taken out of service recently. Citi says west coast heavy airlines...
It was a given that a week's worth of high fuel prices would negatively impact airlines. I said earlier this week that this could be the end of the high-flying post covid era and potentially send some airlines into chapter 11 and keep others there.
The west coast is the most susceptible to higher fuel prices because there have been several refineries and pipelines taken out of service recently. Citi says west coast heavy airlines are most vulnerable.
Crack spreads are also rising which is precisely when DL's refinery begins to deliver larger benefits.
let's also keep in mind that much of the labor cost increases have been absorbed because of low fuel prices. AS/HA are in merger integration talks and UA has multiple outstanding contracts.
add in that some airlines including UA have huge orderbooks w/ massive deliveries that will drain cash and this could all get real messy real quick.
Airlines will cry and get another taxpayer bailout just like they did when the world had the flu.
With the horrible job reports, Trump threatening Cuba and Epstein file cover-up, expect LAX-LAS to hover around grand RT.
A “week”? What’ll you be saying in a month or a year if this continues? How about when China attacks Taiwan?
I'm just saying that it would only take a week; I'm not saying that it will be ONLY a week.
and there are all kinds of geopolitical calculations going on that best prove to be right.
It is most interesting that Ukraine is sharing its anti-drone technology with Arab Middle East countries; of necessity, Ukraine has figured out how to build the world's best drone defenses - even if they still aren't perfect. You can bet that Ukraine has an ask.
A week have an effect? That's a ridiculous statement given that airlines hedge most if not all of their fuel costs. There should be no immediate effects.
US airlines do not hedge fuel.
The only structural control over fuel prices in the US industry is DL's refinery which provides some distribution cost savings but is most effective when the crack spread between heavy distillates such as jet fuel and diesel. There are some indications that setup is happening right now but whether that continues remains to be seen. DL's refinery contributes the most when crude prices are higher so DL is...
US airlines do not hedge fuel.
The only structural control over fuel prices in the US industry is DL's refinery which provides some distribution cost savings but is most effective when the crack spread between heavy distillates such as jet fuel and diesel. There are some indications that setup is happening right now but whether that continues remains to be seen. DL's refinery contributes the most when crude prices are higher so DL is likely going to receive some benefit even at current crude and refined prices.
So much winning, wouldn’t know where to start. Grateful.
MAGA!