Travelers should brace themselves, as US airfares could soon go up because of the Iran war.
United Airlines CEO Scott Kirby warned during an industry event on Thursday that rising fuel prices can have a “meaningful” impact on the airline’s financial status for the quarter. Kirby said that the effect on ticket prices will “probably start quickly.”
On Friday, West Texas Intermediate, the US oil benchmark, jumped by more than 11%, reaching almost $91 per barrel. On the other hand, Brent Crude, the international benchmark, spiked to $92.47, its highest in almost two years.
Premium Tickets Affected
Travel industry analyst Henry Harteveldt, founder of the Atmosphere Research Group, said he is already seeing airplane ticket prices go up since the start of the Iran war.
He said, “Airlines began increasing airfares this week as spot jet fuel prices started to spike.” However, Harteveldt noted that it mostly affects business and first-class tickets. He added, this won’t affect “people who buy basic economy or discount coach tickets.”
For Harteveldt, “Airlines know, perhaps better than any other industry, what consumers’ willingness to pay for a flight is.”
Disruption in Supply
Jet fuel accounts for around 20% of an airline’s operational expenses. On Thursday, a gallon was at $3.95, up from $2.50 in late February, according to the Argus US Jet Fuel Index.
Because of the Iran conflict, the Strait of Hormuz, which serves as an important trade route in the Middle East for liquefied natural gas, has been closed.
Vidya Mani, a visiting associate professor at Cornell University’s SC Johnson College of Business, said that issues with oil and gas supplies could result in higher prices for related products.
She said, “When this lasts for several weeks [or] months, the compounding effect ripples through supply chains due to the lack of energy access at major manufacturing hubs.”
Canceled or diverted flights in the Middle East are already costing airlines significant revenue. According to Fitch Ratings, “Disruption increases operating costs through longer routings, additional technical stops, crew and staff overtime, and higher accommodation and handling expenses.” Analysts from Fitch Ratings added that aside from lost revenue, “airlines are likely to be affected by higher fuel prices.”
