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Airlines are passing on fuel price hikes to travelers as demand rebounds

·Reporter
·2 min read
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If you're planning your summer vacation, brace yourself for higher airfares.

A combination of the rise in oil prices amid the Russia-Ukraine war and a travel demand rebound after the pandemic disruption of the last two years is leading airlines to confidently raise prices.

“The biggest surprise to us in recent airline commentary was that demand was so strong that they feel confident in the ability to pass through the majority of the fuel increases,” Bank of America analysts wrote in a note after a presentation by Delta Air Lines (DAL) and United Airlines (UAL) at the J.P. Morgan Industrials Conference. “This is way ahead of how airlines have been able to price historically, and we think near term labor issues and pilot pipeline helps keep a lid on capacity.”

A traveler checks flight schedules for various airlines at Ronald Reagan Washington National Airport (DCA) in Arlington, Virginia, on January 15, 2022. (Photo by Stefani Reynolds / AFP)
A traveler checks flight schedules for various airlines at Ronald Reagan Washington National Airport (DCA) in Arlington, Virginia, on January 15, 2022. (Photo by Stefani Reynolds / AFP)

There is a shortage of pilots for passenger airlines, particularly in North America, as well as ongoing staffing issues. The reduction in supply of labor, along with business struggles amid the pandemic, led some airlines to cut routes across the country in late 2021.

According to a Hopper data published March, a travel search engine, the average airfare from U.S. to Europe round-trip rose 16%, to $770, from the month prior.

At the conference, United Airlines officials noted that business is now booming again after the pandemic wrecked demand for both leisure and business travel in 2020 and continued to lag in 2021.

“UAL notes business demand is tracking ahead of expectations, returning to ~70% of 2019 levels , [which is] +30 points vs peak of Omicron variant,” J.P. Morgan analysts wrote. "Exemplifying strong yields, revenue from business travel is 75% recovered. ... While UAL is currently not passing through 100% of the increase in fuel prices to fares, management believes they will have no problem doing so in 2Q22."

In a separate note, the same Morgan Stanley analysts wrote that Delta is also optimistic that the airline can offset higher fuel costs amid an upswing in vacation travel demand and the uptick in business travel.

"With Delta achieving an all-time record in single-day cash sales last week, management is increasingly confident in its ability to pass 100% of higher fuel costs to fare prices in 2Q22," the March 14 note stated. "Management estimates an additional $10-$15 per ticket to compensate, and is seeing no difficulty in accomplishing this ahead of the usual 60-90 day window it usually takes to pass through higher costs."

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv

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