The peace agreement between the United States and Iran has caused oil prices to fall, allowing airlines to significantly reduce fuel costs. At the same time, passengers should not expect air ticket prices to fall quickly. This is reported by Reuters.
In the United States, the spot price of jet fuel fell from $4.88 per gallon in early April to $2.85 in June. If this price remains, American airlines will be able to save more than $40 billion a year. However, the companies plan to use these funds primarily to restore profitability, and not to reduce fares.
Airlines explain this by the fact that previously ticket prices have not kept up with the rise in fuel costs. From January to May, jet fuel prices rose three times faster than airfares. Deutsche Bank estimates that carriers managed to recoup only 60 cents of every additional dollar spent on fuel.
Now that fuel is cheaper, airlines want to first cover previous losses and return to profit. Only then can they consider lowering prices.
Another reason for high fares is the limited number of available seats. Delays in the delivery of new aircraft and the decline in the activity of budget airlines have prevented carriers from quickly increasing supply. In particular, the number of seats on domestic flights in the United States in the third quarter will grow by only 0.4%, although before the Middle East crisis they were expecting an increase of 4.6%.
In conditions where seats are few and demand remains high, airlines have no incentive to reduce prices. United Airlines CEO Scott Kirby said the company is “on track to be 100% back by the end of the year,” meaning that it will fully cover fuel costs through fares. Delta, American and United also said that as of June they had only recouped 40-50% of the losses caused by higher fuel prices.
Southwest’s chief operating officer, when asked about a return to normal prices, rhetorically asked, “When are fuel prices going to come down?” He implied that even after the current drop, jet fuel is still 54% more expensive than it was a year ago.
