Although prices for jet fuel have fallen sharply in recent months, airlines have made it clear they have little intention of lowering ticket prices or rolling back baggage fees anytime soon, a new report detailed. Instead, airlines say strong travel demand and limited seat availability continue to support higher fares, allowing them to maintain pricing even as fuel costs ease.
Jet fuel prices surged in the early weeks of the war in Iran, nearly doubling and forcing airlines to absorb billions of dollars in additional expenses. Major carriers responded by raising ticket prices, trimming flight schedules, and increasing fees, arguing that the higher costs left them with few alternatives.
"We had no choice," Delta Air Lines CEO Ed Bastian said last week, noting that major airlines collectively paid roughly $2 billion more for fuel during the quarter. However, the economics have shifted considerably since then.
According to data from Airlines for America, spot jet fuel prices have dropped about 40% from their April peak through June 25, largely a result of airlines reducing the number of flights while U.S. refineries increased production to capitalize on previously elevated prices.
Despite that sharp decline, travelers have yet to see any meaningful relief at checkout. According to CNN, Deutsche Bank Securities data tracking hundreds of published fares shows ticket prices are now between 15% and 20% higher than they were a year ago. Airlines have implemented eight rounds of fare increases since the spring, including another increase just two weeks ago, according to Deutsche Bank airline analyst Mike Linenberg.
Industry executives argue that ticket prices are driven far more by supply and demand than by the cost of jet fuel. "[Ticket prices are] going to be dictated by market conditions, not by some academic formula, or target of calculated recovery" of fuel costs, Southwest Airlines CEO Bob Jordan told investors during the company's April earnings call.
The industry's strategy has been helped by an unusually tight supply of seats. Airlines have eliminated many lower-demand routes while focusing capacity on their most profitable markets. The closure of Spirit Airlines in May further reduced the number of low-cost seats available, placing additional upward pressure on fares across the industry.
Those capacity reductions have created a market where consumers continue paying elevated prices, particularly during the peak summer travel season. A typical single-aisle commercial aircraft burns roughly 800 gallons of jet fuel every hour. Delta, American Airlines, and United Airlines together reported approximately $1 billion in additional fuel expenses during the second quarter alone.
Still, Linenberg believes current pricing will more than offset those higher costs. He noted that many airlines, especially smaller discount carriers, are still struggling to achieve consistent profitability after the pandemic. "You can't keep losing money year in and year out and expect to be an ongoing company," Linenberg said.
That financial reality helps explain why airlines are reluctant to surrender what has become a stronger revenue stream. United Airlines Chief Commercial Officer Andrew Nocella acknowledged as much earlier this year, telling investors that the longer customers continue paying higher prices, the more likely those prices become permanent.
"This is not a situation where we should expect that the airfares are just going to cool off," airline industry analyst Zach Griff said. "And baggage fees are as sticky as they get. You won't see airlines retract things like that."
