Airfares are rising, and the price travelers pay to fly may not drop anytime soon.
United Airlines said Wednesday it has raised prices five times since the start of the global oil price surge, sending jet fuel costs soaring.
United was also among the first in a parade by US airlines to increase checked baggage fees, which now start at $45 for the first bag.
Together, these movements have Hitting the wallets of consumers hoping to book summer trips. as airlines have tried to pass on higher costs to passengers.
And the Chicago-based airline is giving customers plenty of reason to think the higher prices could stick around for many months.
“We assume fuel can remain high for longer,” CEO Scott Kirby said on the company’s first-quarter earnings conference call Wednesday, alluding to the uncertainty in the Middle East that triggered the rise in global oil prices.
Why airfares may not drop anytime soon
Even if oil prices begin to cool in the coming months, it’s unclear when (or if) customers will get a big price break when they book a flight.
For starters, airlines rarely reduce baggage fees; once they go up, they usually stay up.
And while fares fluctuate regularly, United executives suggested that industry-wide flight prices could remain elevated beyond the current global oil crisis.
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“I think the longer the fuel price stays in this range, and the longer consumers pay these prices (and airlines get used to this revenue stream), the more likely it is to stay,” United Chief Commercial Officer Andrew Nocella told analysts on Wednesday.
That’s certainly not good news for consumers, who have simultaneously faced skyrocketing prices at the pump.
And it’s not just United who say this.
In recent weeks, numerous airline executives and Wall Street analysts have pointed out that fares this decade have risen much less than prices in other sectors of the economy.
“Airfares have lagged significantly behind inflation over the past six years,” Deutsche Bank analyst Michael Linenberg wrote in a report earlier this month.
For that reason, airlines, especially American ones that have had lackluster financial results in recent years, could see an opportunity to charge customers more in hopes of boosting profits, Nocella said Wednesday.
“I think airlines want to recover their cost of capital and, particularly here in the United States, most don’t,” he said. “Something had to change. It’s unfortunate that it had to be an oil crisis, but here we are.”
For those hoping the rate increases will be short-lived, that’s probably not good news.
Flight cancellations due to fuel on the way
Of course, as prices rise, some customers will stop booking trips.
United said it has not seen a notable drop in demand, but reiterated its plans to cut about 5% of flights through the end of the year.
The airline plans to primarily reduce “marginal” flights on less popular travel days, such as Tuesdays, Wednesdays and Saturdays. Expect to see some domestic redeyes getting fired as well.
Travelers booked for this summer should expect to see United cancellations over the next week, executives said.
In a nutshell
TPG is keeping tabs about the growing number of US and international airlines that have begun cutting flights as a result of rising fuel prices.
While your airline will likely rebook you on a different flight if your departure is cancelled, you don’t have to accept it if the new flight doesn’t fit your schedule.
Under U.S. Department of Transportation policy, air travelers are entitled to a full refund if their flight is canceled. Refund rules also apply to flights that are significantly delayed or experience major schedule changes.
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