Why Airfare May Remain Expensive Despite Falling Fuel Prices: Delta Air Lines CEO Says 'As Predicted...'

Travelers waiting for airfares to drop as fuel costs decrease may need to reevaluate their expectations. According to Delta Air Lines CEO Ed Bastian, lower oil prices are unlikely to translate into cheaper airfares because the industry’s pricing model has fundamentally changed.

Speaking to Moneywise, Bastian said today’s prices are no longer driven solely by fuel costs. Instead, airlines set ticket prices based on a broader set of costs, including labor costs, airport operations, technology and aircraft costs. He added that Delta believes its “current revenue momentum should remain sustainable even as fuel prices moderate.”

Delta posted a strong financial performance for the quarter, reporting record revenue of $17.7 billion, up 14% year-over-year. The airline also posted a pre-tax profit of $1.4 billion despite facing a record quarterly fuel bill of $4.4 billion, a 77% increase from a year earlier. It also increased its dividend by 15%, with earnings of $1.56 per share.

Explaining the results, Bastian said airlines are much faster at passing on higher fuel costs to passengers. “As we predicted, structural changes have accelerated, allowing the industry to regain fuel cost inflation this year at the fastest rate in any recent cycle,” Moneywise said.

He argued that the shift is more long-term than temporary, signaling a permanent change in how airfares are priced.

Why airlines are in no rush to cut prices

Bastian said low-cost airlines are no longer in a position to spark a price war, as many are still struggling to cover their operating costs. The low-cost segment, he said, “still needs to increase fares by another 5% to break even.”

As expenses such as wages, airport fees, aircraft and technology remain elevated, airlines have little incentive to compete by lowering prices. Instead, Bastian said the focus has shifted to “finding ways to drive more revenue, not more market share.”

Ticket inflation remains high

Recent government data reflects the trend. Airfare was 26.7% higher in the 12 months through May and rose another 2.7% during May, according to the U.S. Bureau of Labor Statistics.

Bastian argued that fare increases are helping the industry recover rather than costing customers more. He told Moneywise: “even after the recent price hike, air fares since Covid remain 10 to 15 points below headline inflation,” suggesting airlines still see room for price growth.

The industry is also recovering from financial pressure. Data from the U.S. Bureau of Transportation Statistics showed that U.S. passenger airlines posted a combined net loss of $966 million in the first quarter, reinforcing why carriers are reluctant to give up their recently regained pricing power.