Due to the fuel crisis: airlines around the world have begun raising fares
30 March 12:15
Airlines around the world have begun raising fares and cutting capacity to cope with the sudden surge in oil prices, but the industry’s ability to remain profitable may depend on whether consumers stop flying, as rising gasoline costs threaten household budgets.
This is reported by "Komersant Ukrainian", citing Reuters.
Until early last month, when the conflict between the U.S. and Israel with Iran erupted, the aviation industry had forecast record profits of $41 billion in 2026, but the doubling of jet fuel prices has put that in jeopardy and forced carriers to reevaluate their networks and strategies.
Carriers ranging from United Airlines to Air New Zealand and Scandinavian SAS have announced capacity cuts and price hikes, while others have introduced fuel surcharges.
“Airlines are facing an existential challenge,” said Rigas Doganis, who heads the London-based consulting firm Airline Management Group.
“They will have to lower fares to stimulate sluggish demand, while higher fuel costs will push them to raise fares. It’s a perfect storm,” Doganis said.
Record Passenger Traffic
Last year, the industry reported record global passenger traffic, which rebounded by about 9% compared to pre-pandemic levels, even amid ongoing supply chain issues that affected the delivery of new aircraft.
Record demand for travel
Record post-pandemic travel demand and ongoing supply chain issues have constrained capacity growth and given airlines significant pricing power as they filled more seats on each aircraft.
But the scale of growth needed to offset rising jet fuel prices is enormous at a time when consumers are under pressure from higher gasoline prices, which could limit discretionary spending.
“The only way to raise prices is to cut capacity,” said Andrew Lobenberg, head of research at Barclays European Transport Capital.
“That’s exactly what I expect this time, and it’s what we’ve seen in previous instances when we’ve had other crises; people simply need to start cutting capacity.”
Higher ticket prices
This was announced by United Airlines CEO Scott Kirby. Last week, ABC News reported that airlines would have to raise fares by 20% to cover higher fuel costs.
Hong Kong-based Cathay Pacific Airways has scrapped fuel surcharges twice in the past month, and starting Wednesday, a fuel surcharge of $800 will be applied to round-trip flights from Sydney to London. Before the conflict with Iran, the typical cost of a round-trip economy-class ticket on this route was approximately 2,000 Australian dollars ($1,369.60).
Low-cost carriers may face the greatest challenges, given that their passengers are more price-sensitive than corporate clients and affluent consumers, whom premium competitors such as Delta Air Lines and United Airlines are increasingly targeting, analysts say.
“I think that for travelers who are more price-sensitive, even short-haul flights will be reduced, possibly replaced by travel by rail, bus, or other alternatives,” said Nathan Gui, head of transportation research for the Asia-Pacific region at Bank of America.
The Middle East conflict marks the fourth oil shock for the aviation industry since the start of the century.
