Brace for higher ticket prices due to Iran war
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Travelers can expect airlines to raise ticket prices, idle planes and implement fuel surcharges on certain flights if energy prices remain elevated, according to industry analysts.
The big picture: Jet fuel costs — which account for about 30% of airline expenses, according to Deutsche Bank — have spiked since the Iran war began.
- The closure of the Strait of Hormuz — which carries about 20% of the world's oil supplies — has triggered the rise.
- The global average price of jet fuel soared 58% in the first week after the war, according to International Air Transport Association.
Follow the money: That's already led to price hikes for advanced purchase airline fares.
- In the first week after the war began, advance purchase fares more than doubled for transcontinental flights, according to Deutsche Bank analyst Michael Linenberg.
- Fares to the Caribbean increased 58%, while fares to Florida jumped 43%.
Threat level: While those fare increases will help partially offset the higher costs, a sustained rise in jet fuel prices poses "an existential threat to the industry's financially weakest carriers and could lead to a significant number of grounded aircraft around the world," Linenberg writes.
- It could be particularly bad timing for Spirit Airlines, which relies heavily on low fares, as it exits its second bankruptcy in 18 months hoping to establish a more sustainable business.
- Part of the problem is that "major carriers in the U.S. and China have no hedging contracts in place, leaving them fully exposed to jumps in the fuel price," Reuters reports.
Yes, but: Consumers and business travelers can still find ways to save, according to The Points Guy, including:
- Using Google Flights to scout out the cheapest fares, setting alerts to monitor fare drops and booking flights with miles that can be changed or refunded if a better option presents itself.
What we're watching: Whether airlines reduce capacity and pass along the extra costs in the form of fuel surcharges.
- "While domestic fuel surcharges are not permissible in the U.S., they are prevalent in international markets, especially for long-haul, intercontinental flights," according to Linenberg.
- Meanwhile, "the least fuel-efficient aircraft will be grounded, some permanently," such as small regional jets and certain older planes, Linenberg adds.
The bottom line: Jet fuel prices often remain elevated for months after major crises, aviation expert Hans Joergen Elnaes tells Reuters.
