The US-Israel war in Iran, now in its third week, has prompted airlines to raise fares to cover soaring fuel costs. But that doesn’t seem to have deterred travelers, The New York Times reported.
The war, which began in late February, has seen widespread disruption to the aviation sector worldwide due to ongoing airspace restrictions in the Middle East.
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Demand for travel is strong with higher fares
At an investor conference on Tuesday, several executives from major U.S. airlines said strong travel demand was helping to offset disruptions from winter storms and a steep rise in jet fuel prices since the start of the war. On Monday, jet fuel prices were about 50% higher than pre-war levels, the report said.
Jet fuel, which typically accounts for about one-fifth to one-quarter of airline operating costs, rose to $3.93 a gallon on Tuesday in the Argus US Jet Fuel Index, a roughly 57% increase since the start of the war, according to a Forbes report.
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The ticket transaction value jumps
New data from Consumer Edge shows that among the six largest U.S. airlines, average ticket transaction values rose between 2% for American Airlines and 16% for Delta Air Lines in the week ending March 8 compared to the previous week.
Citing executives at American Airlines and Delta Air Lines, The New York Times reported that each carrier faced $400 million in additional fuel costs. However, they did not adjust their first-quarter profit outlook, citing continued strong ticket sales. Both airlines also said eight of their top 10 sales days on record have taken place so far this year.
American Airlines expects first-quarter revenue to rise more than 10 percent compared to the same quarter last year, its biggest quarterly jump year-over-year.
Fare prices are increasing across the board
According to a price analysis by Deutsche Bank analysts, ticket prices have increased significantly since the beginning of the conflict. The sharpest gains were seen in last-minute bookings, which are commonly made by business travelers.
On March 12, the lowest prices for next-day flights to Asia, Europe and other countries averaged about $1,900, The New York Times reported, citing Deutsche Bank data. On February 26, fares for similar last-minute flights to destinations across the Atlantic Ocean were $830, while tickets across the Pacific were $1,000.
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Fares for US coast-to-coast flights also rose by at least 16 percent, the report suggests.
In addition, prices for flights three weeks ahead, including leisure travelers, have also seen a jump since the start of the war. While flights to Latin America were cheaper, flights to Mexico were largely unchanged.
Ticket prices are rising due to the rise in jet fuel prices
The increase in airfares was largely the result of soaring jet fuel prices, which typically represent an airline’s second largest operating expense after labor costs. By 2025, jet fuel will account for roughly 20 to 25 percent of the operating costs of most major U.S. airlines.
Before the war, jet fuel prices were around $2.50 a gallon. They touched $3.78 a gallon on Monday, according to Argus Media.
European airlines warn of higher prices
On Thursday, Reuters reported that European airline chiefs warned that a protracted war in the Middle East was likely to affect airfares and push them up, as flight cancellations continue to drive up jet fuel costs and prices.
“The longer it goes on, the bleaker it will look,” Michael O’Leary, Ryanair’s chief executive, told Reuters. While most European airlines are currently protected by fuel hedges, these contracts will expire in the coming months.
However, it remains to be seen whether European airlines will raise ticket prices in the coming weeks.
