Fuel crisis forces airlines to announce major fare increases, flight cancellations as Iran conflict escalates
The escalating conflict in Iran may no longer be contained to the Middle East, as it threatens to deliver a direct hit to the American pocketbook.
As oil prices surge and global flight paths are redrawn, international carriers are already raising fares. While U.S. airlines have not yet raised prices, a new analysis warns a double-digit fare increase could be imminent for domestic flyers.
With jet fuel one of the largest expenses for airlines, domestic flight prices would need to increase by at least 11% to offset current fuel costs, according to Skift Research. Higher fuel costs could translate into higher fares for U.S. travelers.
Global benchmark Brent crude topped $100 per barrel late Thursday morning, marking a more than 60% increase since the start of the year. The market continues to react to halted oil shipments in the Strait of Hormuz and multiple strikes on Middle Eastern oil facilities and tankers as U.S. military forces continue Operation Epic Fury.
AMERICAN AIRLINES BECOMES FIRST U.S. CARRIER TO RESTORE VENEZUELA FLIGHTS SINCE 2019 SHUTDOWN
Qantas and Scandinavian Airlines announced earlier this week that they would raise fares in direct response to rising fuel prices, Reuters reported.
Air New Zealand said it plans to cancel 1,100 flights, impacting more than 44,000 passengers, between now and early May.
"It’s an unprecedented issue as far as fuel price is concerned, but managing fuel spikes is a well-trodden path if you’re running an airline," CEO Nikhil Ravishankar said on Radio New Zealand.
Multiple outlets reported Wednesday that Thai Airways plans to raise ticket prices by 10% to 15% due to demand and rising fuel costs, with CFO Cherdchom Therdthirasak saying during an investor meeting this week that "passengers planning to travel should secure their tickets as soon as possible before fares rise further."
The CEO of Hong Kong’s primary carrier, Cathay Pacific, said at a press conference that with fuel prices as high as they are, price surges are being considered.
"In March, like ever since the Middle East episode began, the costs of our fuel already doubled," CEO Ronald Lam said, the AFP reported. "So we are going to announce [a surcharge] very soon."
United Airlines CEO Scott Kirby spoke at a Harvard University event Thursday and said high oil prices will have a "meaningful" effect and could extend into the second quarter if the war continues, adding that the impact on fares will "probably start quick," according to Forbes.
Most U.S. carriers, including United, Delta, Southwest and American, stopped hedging fuel decades ago, Forbes said, and there is no protection contract with the U.S. government that fixes fuel prices for commercial companies.
Delta, however, is partially insulated due to its ownership of the Trainer refinery in Pennsylvania, allowing them to avoid refining margins, though they still pay market rates for raw crude oil.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
Popular travel guide The Points Guy recommends not waiting to book flights amid the conflict — or risk paying more.
"If you're planning to fly this summer, go ahead and lock in your airfare now. As experts noted, prices could surge any day now," The Points Guy wrote. "That's especially true if you're hoping to fly in June or July, which in recent years have been the busiest and most expensive months of the summer to travel."