United Airlines CEO Scott Kirby told ABC News on Wednesday that the month-long U.S.-Iran conflict and the resulting spike in jet fuel prices are set to push domestic summer airfares higher.
Kirby told ABC that ticket prices will have to rise by 20% to offset the more than 80% jump in jet fuel prices since the conflict began late last month. He said travelers should lock in their ticket prices now, before fares move higher.
Jet Fuel NY Buckeye MOC (New York Buckeye Pipeline jet fuel benchmark)
In a separate report, Bloomberg cited data from research firm Alton Aviation showing that long-haul summer airfares have surged. In particular, June fares on key Asia-Pacific-to-Europe routes are up 70% from a year ago, with some routes experiencing even steeper increases: Hong Kong to London, up 560%; Bangkok to Frankfurt, up 505%; and Sydney to London, up 429%.
Data from the research firm Cirium show that demand for summer travel is already softening. Summer bookings for June travel from Europe to the U.S. have declined 15% from the same month a year ago, while bookings in the opposite direction have fallen 11%. Bookings from Asia to Europe also declined during the month, down 4.4%, including routes that connect through the Middle East.
"What we're seeing is not just a short-term pricing shock. Even as the immediate disruption eases, longer routings, tighter capacity, and higher fuel costs will keep upward pressure on prices for an extended period," Bryan Terry, a managing director at Alton, told Bloomberg.
Terry added, "It could take up to three months for the price reductions to work their way through the jet fuel supply chain."
In recent weeks, analysts at Deutsche Bank and UBS have both warned that airlines may have to cut capacity to offset the spike in jet fuel prices. Reduced capacity, combined with higher fuel costs, points to possible demand destruction in travel this summer as consumers face sticker shock on ticket prices.
S&P 500 Airlines Index breaks sees technical breakdown.
However, UBS analyst Atul Maheswari states why he sees a possible bottom (report here).
