Air travelers are paying the price for airlines’ surging fuel costs.
Airlines are raising fares, adding baggage fees and dialing back routes as they try to cover the skyrocketing costs of jet fuel, which is among the biggest expenses that airlines face.
Starting in Europe and Asia and now moving to the U.S., airlines have been slapping new fuel-related fees on tickets. Air France-KLM hiked its fuel surcharge on certain routes, while Cathay Pacific Airways said it would boost its fuel fee by even more this week. Starting April 1, a new add-on fee of $200 will be charged, up from the $149 customers paid in March, according to Cathay’s website.
JetBlue Airways said earlier this week that it was starting to charge more for bags, with many routes during peak periods costing $49, up from $40. And some requests to check bags within 24-hours of travel will now cost $59.
United Airlines Holdings’ Chief Executive Scott Kirby has warned that fares could shoot up as much as 20% because of war-related shortages of fuel.
“The reality is, jet fuel prices have more than doubled in the last three weeks,” Kirby said in a letter to employees on March 20. He said the airline has gamed out the possibility that oil prices jump to $175 a barrel.
The moves are a side effect of the war with Iran, which has spread across more of the Middle East, creating tighter supplies of oil and petroleum products such as jet fuel.
“If prices stayed at this level, it would mean an extra $11 billion in annual expense just for jet fuel. For perspective, in United’s best year ever, we made less than $5 billion,” Kirby said.
Meanwhile, United said it trimmed the number of flights it has for the summer months. Other airline executives have also said they were willing to pull flights that don’t make enough revenue to offset the fuel burn.
Andrew Kirkegaard had been planning a trip with his wife to Madrid in early June and was close to buying $700 flight tickets from his home in Detroit to Europe when the Iran war broke out.
The price of tickets nearly tripled, he said. Now he is considering a flight or four-hour drive up to Toronto to snag a cheaper fare across the Atlantic.
“It’s obviously a pain because I have to go through customs twice each way,” he said. “But I mean, we’re saving 1,500 bucks, so it’s worth it.”
Syd Arnedo, in Toronto, is considering postponing a trip to Alberta planned in the fall because of the rising airfares.
Arnedo said he booked a round trip to Manila this summer for about 2,000 Canadian dollars, or the equivalent of roughly $1,438, in late January. When he checked a couple of days ago, the same trip on the same plane cost 3,000 Canadian dollars, or about $2,156.
Fares for last-minute domestic flights from most U.S. airlines last Friday were higher than they were a week earlier, according to DeutscheBank. At JetBlue, the lowest price for a one-way domestic flight was 16% higher than the previous week. Trans-Atlantic flight fares were up 6%, and flights to Florida were up more than 17%.
“We’ve seen pricing increase twice in the industry, just in the last two weeks,” Delta Air Lines CEO Ed Bastian told analysts in mid-March.
Federal regulations bar airlines from retroactively charging customers a new or increased fuel surcharge once they have already paid for their flight.
U.S. carriers, and usually foreign ones too, are bound to the terms of the deal they strike with customers at the time of booking, said Clint Henderson, managing editor of travel site The Points Guy. The one big exception: if changes are made to the ticket after booking, like shifting the date or the time of departure.
Booking with a foreign airline using U.S. airline miles can also become a problem if the ticket wasn’t issued at booking, Henderson said. Prices could be higher if fuel surcharges increase by the time the ticket gets issued, though this is rare, he said.
Jet fuel, which is refined from crude oil, is among the biggest operating costs that airlines face.
Prices hit $4.62 a gallon on Monday, its highest price so far this year, according to Argus Media. Before the conflict broke out, jet fuel cost about $2.50 a gallon.
The increase has hit airlines’ bottom lines quickly. Delta can offset some of its fuel costs because it owns a refinery. Yet Delta’s Bastian said the airline’s fuel costs still jumped by $400 million in the month of March alone.
Most airlines don’t hedge their fuel purchases any more, exposing them to large price increases.
Alaska Air Group warned that refining margins for its fuel rose fivefold since early February, and it now expects a deeper loss for the first quarter. American Airlines Group and United have each said higher jet-fuel prices have driven up first-quarter costs by $400 million.
“There’s absolutely an impact to the first quarter in terms of profitability and likely an impact in the second quarter as well,” American Airlines CEO Robert Isom told analysts two weeks ago.
Low-cost carriers like Spirit Airlines and Frontier Airlines are especially vulnerable, which means the least expensive fares that many travelers count on might be going up.
The low-cost airlines were already flying with smaller margins before jet-fuel prices surged. They might need to raise prices to offset their higher costs, even though that could chip away at their main competitive advantage.
“They’ve always been predicated on this idea of having low fares,” Melius Research analyst Conor Cunningham said, but added that the low-fare airlines now need higher fares just as badly as their costlier peers.
To date, airlines have said demand has remained strong. But it could drop as the cost of flying mounts. The U.S. Energy Information Administration has raised its price projection for Brent crude oil this year by 37%.
Write to Dean Seal at dean.seal@wsj.com
