Airfares set to take off as fuel prices fly

Just like regular gas station consumers, airlines fueling in Los Angeles are forced to adapt to higher prices at the pump.

Jet fuel prices have skyrocketed, and experts say airfares are following suit.

As a busy summer season approaches, airlines are beginning to pass on costs to passengers by increasing fares and fees.

“Whenever there is an increase in oil prices, airlines end up passing it on to consumers immediately,” said Diego Bufquin, director of hospitality management and entrepreneurship at Tulane University. “It doesn’t take long.”

Airlines have been struggling around the world since the United States and Israel began bombing Iran late last month. Flights must take longer routes around war zones, and higher fuel costs are eating into their already thin profit margins.

Jet fuel prices represent about a third of airlines’ operating costs, so they “can’t afford to wait to bill their customers,” Bufquin said.

United Airlines Chief Executive Officer Scott Kirby told CNBC that soaring fuel prices would have a “significant” impact on the airline’s financial results.

Some airlines outside the United States have already added fuel surcharges to their ticket prices. Air India last week announced a gradual increase in fuel surcharges on domestic and international routes. Hong Kong’s national airline Cathay Pacific said it would charge a surcharge on all its fares to cover fuel costs from Wednesday.

Airlines refueling at LAX and other regional airports are already being impacted. Jet fuel prices in Los Angeles have jumped more than 40% since the start of the Middle East conflict.

Much like the price of gasoline for cars, jet fuel often costs significantly more in California than in other states.

California is largely detached from the rest of the fuel distribution system. With limited pipeline connectivity, it is more dependent on shipping by sea from other states and countries. California also imposes higher taxes on jet fuel than many other states.

National average gas prices reached $3.71 per gallon on Tuesday, according to AAA. In California, the Tuesday average was $5.52 per gallon.

Still, demand in the spring and summer is expected to remain strong even as prices rise, said Alan Fyall, associate dean of the Rosen College of Hospitality Management at the University of Central Florida.

“Rates are going up, but the demand is still there nationally,” Fyall said. “The only thing really holding back demand is the economic recession. »

Indeed, consumers booked earlier than usual to benefit from lower prices for their summer trips, airlines said. Delta and American Airlines had some of their strongest daily sales on record in March.

“When prices went up, we saw an increase in demand,” Ben Minicucci, chief executive of Alaska Airlines Inc., said this week, according to Bloomberg. “I think people understood that first sentence: ‘Wow, if this is going to get crazy, I better book my fare now before the fares go up.’”

Airlines and other sectors will face tougher conditions if fuel prices remain high for a prolonged period, he added.

Airfares were already rising, according to the Consumer Price Index, which found the airfare index rose 1.4% in February compared to last year.

The impact will vary by airline, Fyall said. Many airlines hedge their fuel to negotiate a fixed price and stock up on fuel while it is cheaper.

“Airlines that manage their fuel purchasing process very well, that hedge themselves very well, tend to be able to offset the fees charged well,” Fyall said.

Jet fuel prices are even more sensitive to economic forces than automobile fuel prices, experts say.

It’s not yet clear whether Californians will have to pay significantly higher airfares than their neighbors, but some air routes within the state could become temporarily unavailable, according to Bufquin. As airlines look to save money, they could cut some shorter, less profitable routes.

“Budget airlines like Spirit and flights from smaller California hubs like Burbank, San Jose and Fresno are at risk of being canceled,” Bufquin said.