Summer travel will be more expensive and some airlines could go out of business as the war in Iran continues to drive oil prices up.
Airlines across the world have been grappling with higher jet fuel prices since the U.S. and Israel began bombing Iran late last month. Customers are already facing higher fares.
United Airlines Chief Executive Scott Kirby said this week that his company could face an $11-billion loss if oil prices remain at their current levels. Meanwhile, United’s airfare could increase by 20%, he said.
With thin profit margins and oil prices hovering around $100 per barrel, airlines have no choice but to pass the increased costs onto consumers.
Some airlines might not survive the hit.
Kirby compared the situation to the pandemic in 2020, when a global shutdown squashed demand and travel.
“If these other guys make the same mistakes they made six years ago, and if the forecast about $175 per barrel is right, you’ll see airlines not survive,” he said Tuesday.
Budget airlines are at higher risk because they have razor-thin margins and rely on high customer volume, said Alan Fyall, an associate dean of the University of Central Florida Rosen College of Hospitality Management.
Spirit, the low-cost carrier that filed for its second bankruptcy last year, cut several routes earlier this month.
“They’re less resilient to these types of challenges,” Fyall said.
The impact will vary by airline, he added. Many airlines hedge their fuel to negotiate a fixed price, and stock up on fuel while it’s less expensive.
United Chief Commercial Officer Andrew Nocella said the company is ready to face instability.
“We’ve prepared for shocks to our industry, because they occur on a regular basis,” he said.
“Just like the gas stations have, we’ll have to adjust pricing to reflect our cost of fuel,” he said. “We feel really good about the future even as we go through this period of higher oil prices.”
Like gas for cars, jet fuel is more expensive in California.
Type A jet fuel cost $12.72 per gallon on Friday at Los Angeles International Airport, according to Atlantic Aviation. At Denver International Airport, the price was $9.73 per gallon, and at Miami International Airport, it was $11.73.
The average price of auto fuel in California on Friday was $5.84 per gallon, compared to a national average of $3.97, according to AAA.
The West Coast is a “fuel island” because it’s not connected by pipelines to the rest of the country, Kirby said, meaning all oil and refined products have to be brought in by ships.
“Fuel price is more susceptible to supply weakness on the West Coast than anywhere else in the country,” Kirby said in an interview. “Prices are almost certainly going to be higher.”
Some flight routes in California from hubs such as San José and Burbank could become unavailable as airlines look to save money.
“Airlines will refuel where they can, at the cheapest source,” Fyall said. That could lead companies to avoid filling up in California when possible.
As the global conflict continues and the industry braces itself for even higher fuel prices, United unveiled a new product this week that it hopes will help boost demand.
The United Relax Row, which launches next year, turns a row of economy seats into lie-flat space ideal for families with small children.
Even as ticket prices increase, “there’s a good percentage of the market prepared to pay for elevated experience and elevated comfort,” Fyall said.
