Jet fuel prices are finally easing after soaring during the Iran war, but airline passengers should not expect cheaper tickets anytime soon. According to air travel experts, strong travel demand and the recent collapse of Spirit Airlines are keeping fares elevated, preventing ticket prices from falling despite lower fuel costs.
Airfares Remain High Despite Easing Jet Fuel Costs
Lower fuel expenses would normally ease pressure on airfares, but analysts note that airlines have little incentive to cut prices while demand remains strong and industry capacity has shrunk following the shutdown of cbsnews.com. Furthermore, airfares are remaining elevated due to what economists refer to as the rockets and feathers
effect, where prices shoot up quickly when costs rise but drift down much more slowly when those costs ease.
Julian Kheel, founder of travel rewards site Points Path, told aol.com that airfares had not yet begun to significantly come down because, much like the prices at a local gas station, anything tied to oil tended to rise rapidly but decline slowly.
The Impact of the Middle East Conflict and Operating Expenses
Because jet fuel is an airline’s second-largest expense after labor, the price spike that followed the start of the Middle East conflict in February prompted carriers to raise fares to offset higher operating expenses. Airlines and gas stations react quickly to rising costs to ensure they are covered, Kheel explained, but they are not in as much of a rush to lower prices when costs decrease, with any excess from higher ticket prices going toward better profits.
Data from the Airlines Reporting Corporation (ARC), a provider of air travel data and analytics, shows that the average price of a plane ticket booked through a travel agency in May rose 18% compared to the same period a year ago. ARC Chief Commercial Officer Steve Solomon noted that while oil prices are part of the story behind the increase, continued geopolitical uncertainty and strong travel demand are also major factors. High ticket prices have not caused a decline in passenger trips, with May data showing trip volumes remained unchanged from the previous year.
The Collapse of Spirit Airlines and Shifting Consumer Preferences
On the capacity front, Spirit Airlines’ bankruptcy and May shutdown eliminated a low-cost option that previously provided fare competition across the industry. Because it operated as an ultra-low-cost carrier, it kept prices down on competitive routes.
Kheel stated that as an ultra-low-cost carrier, it had kept costs down on the routes where it competed, adding that that dynamic was gone and nothing had replaced it, while noting that remaining carriers need time to add capacity. With robust demand for summer travel and insufficient time for airlines to add back more capacity, supply falls short of demand, keeping prices high.
Additionally, traveler preferences have shifted since the pandemic toward premium seating and services. Airlines like Frontier and formerly Spirit have experienced difficulties competing in this environment, and experts indicate that the no-frills model is not likely to return anytime soon.
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