Jet fuel prices are rising as war in the Middle East disrupts the world's oil supply, putting pressure on airlines as the summer travel season approaches.
Experts say the question is not whether airfares will increase, but when, by how much, and for how long. The impact will be felt most on long-haul international routes, where planes use significantly more fuel.
Some airlines outside the US have announced price increases or fuel surcharges in an effort to offset rising costs. In the US, United Airlines CEO Scott Kirby recently warned that airfare increases "will likely start quickly" as rising fuel costs weigh on transportation.
The war is limiting oil exports and prompting major producers like Kuwait, Saudi Arabia and Iraq to cut production as barriers to exports are mounting.
Iran has attacked merchant ships across the Persian Gulf and targeted oil infrastructure in Gulf Arab states following US and Israeli strikes. The attacks effectively shut down traffic through the Strait of Hormuz, a narrow passage through which about a fifth of the world's oil is transported.
Volatile crude oil prices, which have caused a sharp rise in retail gasoline prices, have had a similar effect on the cost of jet fuel. The average price in the United States reached $3,99 per gallon (3,8 liters) on Friday, up from $2,50 the day before the war began two weeks ago, according to the Argus U.S. Jet Fuel Index. The index tracks the average price airlines pay for jet fuel at major U.S. airports.
Data from the U.S. Department of Transportation's Bureau of Transportation Statistics shows that U.S. airlines paid about $2,36 per gallon of fuel in January, the most recent data available.
Some airlines are partially protected from sudden price spikes through "fuel hedging," a strategy that allows them to lock in fuel prices months or even years in advance. But not all airlines are insured in this way, and those that are are usually only protected for a portion of their fuel needs, meaning that prolonged price spikes can lead to more carriers raising prices.
"Nobody insures anymore, and even if you do, insuring the difference between prices is really hard," Kirby said at a Harvard conference last Sunday.
Another factor for airlines: Airspace closures have required rerouting flights around parts of the Middle East, which can mean longer routes, additional fuel burn and higher operating costs.
Passengers can feel the impact in several ways.
Airlines can add or increase fuel surcharges, an additional fee common among carriers outside the U.S. that is added on top of the base fare.
However, major U.S. carriers do not charge a separate fuel surcharge. Instead, they factor fuel costs into the total fare, meaning any increase is more likely to be reflected as a higher base fare for passengers, according to Tyler Hosford, director of safety at global risk management firm International SOS.
Airlines can also adjust what they charge for premium extras — better seats, seats with extra legroom, checked baggage or priority boarding — as another way to offset higher operating costs. For consumers, this means that even if the base price doesn’t increase immediately, the overall cost of the trip could still increase when these additional fees are factored in.
If higher fuel prices persist, airlines may also adjust schedules or reduce certain routes, said Christopher Anderson, a professor at Cornell University's business school whose research includes operations and information management in the hospitality and airline industries.
It's difficult to predict exactly how much fares could rise as a result of higher oil and fuel prices. Analysts say the impact of higher jet fuel costs can vary depending on the route, airline and travel demand.
Fuel typically accounts for 20 percent to 25 percent of an airline's operating costs, making it the second-largest expense after labor, according to Rob Britton, an associate professor of marketing at Georgetown University and a retired American Airlines executive. A spike in fuel prices can therefore have a major impact on airline budgets.
So far, most of the price increases and fuel surcharges have come from airlines based in the Asia-Pacific region, but experts expect more airlines - especially those without "fuel hedges" - to follow suit if jet fuel prices remain high.
Hong Kong carrier Cathay Pacific said it would increase its fuel surcharge starting Wednesday.
"The price of jet fuel has approximately doubled since the beginning of March amid recent developments in the Middle East," the airline said on Thursday.
Other airlines with price increases or new surcharges include:
- Air France-KLM said that return economy tickets on long-haul flights could increase by around 50 euros (about $57).
- Air India on Thursday introduced a fuel surcharge on certain routes. From March 18, the carrier said, the surcharge will increase to $50 for all tickets to Europe, North America and Australia.
- Hong Kong Airlines has increased fuel surcharges on several routes from Thursday.
- FlySafer in South Africa has announced a temporary fuel surcharge
Experts say travelers planning summer trips can limit the impact of rising airfares by booking early, rather than waiting for last-minute deals.
Securing fares faster - especially with flexible booking options that allow for changes - can help secure lower prices before airlines adjust them further.
Hosford, director of safety at International SOS, suggests travelers stay flexible with travel dates, check prices at nearby airports, and monitor prices. He suggests not waiting for the "perfect deal" but grabbing the best deal as soon as possible.
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