If you've been waiting for a deal on airline tickets this summer, you may be out of luck. Jet fuel is one of airlines' biggest expenses, and prices are up nearly 50 percent in just the past year. Find out what a major spike in the cost of jet fuel might mean for you and your upcoming travel plans.
Airlines often mitigate costs associated with rising fuel prices by simply passing them on to the customer in the form of higher ticket prices, says airline expert and travel rewards consultant Jason Decker of Nomad Travel Hacker. "Airlines are gearing up for summer, which is the busiest and costliest time of year for them." Some carriers didn't wait for summer to increase fares. Spirit Airlines, for example, raised ticket prices by $3 in April, CNBC reports.
Raising the cost of an airline ticket isn't the only tool carriers have for offsetting higher jet fuel prices. Decker says airlines could also resort to "a reduction in flights to ensure all flights are sold to capacity." That strategy, he notes, can have the unintended side effect of further driving prices up as supply dwindles.
Some airlines use price hikes as a last resort and have learned to adjust to fluctuations in fuel prices without raising fares. One way they do this is by eliminating some of their less-profitable routes. For travelers, that could mean having to catch a connecting flight to reach a city that was once a direct shot.
Carriers have already introduced basic economy fares, which guarantee little more than a seat. Travelers looking to save a buck can opt for these cheap fares, which often deny the possibility of an upgrade, advance seat selection, and even the use of an overhead bin for a carry-on bag. As fuel prices squeeze airlines, look for airlines to add basic economy fares to reduce costs, if they haven't already, or expand the fare class if they have it.
Large carriers are better equipped to absorb major hits when fuel prices rise. This is not the case for budget airlines with business models that favor cheap seats over amenities and comfort. They have very little fat to trim in terms of perks like in-flight meals, and since their prices can't go much lower, they have little competitive leverage as traditional airlines expand basic economy options and trim services. The result: Budget airlines are often the first to be forced to raise prices when fuel gets expensive.
Everyone notices changes in ticket prices, but surging oil costs could also bring more subtle changes, according to James Newman, who works closely with the air travel industry as director of partnerships for PressReader, an app that delivers newspaper and magazine content to travelers.
"Everything that's loaded onto a plane, no matter how light, contributes to the total weight of the aircraft," Newman says. "That raises fuel consumption. That's why you see more and more airlines removing free in-flight magazines and newspapers. It's just too expensive."
Airlines have the option of applying fuel surcharges to some international flights. They don't really need a reason, either. Known as "carrier-imposed fees," these surcharges can be added to fares at the airline's discretion, according to CNBC. They're not taxed the same way as base fares, but the end result is still more money out of the traveler's pocket.
A host of deep-discount carriers have popped up recently in overseas markets. That's forced bigger airlines to keep their prices low, even in the face of rising fuel costs — good news for anyone traveling overseas.
"Legacy airlines like Delta and Lufthansa have to compete with a growing number of budget airlines," says Scott Keyes, founder of Scott's Cheap Flights. "Ten years ago this was confined to regional markets like intra-Europe flights or domestic U.S. flights. Now, with the advent of ultra-low cost carriers like Norwegian Airlines and Wow Air, they are increasingly competing for trans-Atlantic customers. As a result, fares to Europe and elsewhere have stayed relatively low."
With stiff competition in the crucial summer season, many airlines might simply absorb the hit of rising fuel costs in the form of reduced profits. Despite the fact that airlines are still massively profitable, profit reductions rarely make shareholders happy. Although this might not affect your summer travel, it could certainly hurt your portfolio if you invest in airlines directly or through a 401(k).
Airlines can manipulate prices by limiting the number of available seats, but just because they can doesn't mean they necessarily will, says Seth Kaplan of Airline Weekly. In fact, he thinks airlines will hold fares right where they are — at least until the end of the summer crush.
