Nearly one month after Russia’s invasion of Ukraine on February 24, the international airline industry continues to feel the effects of the resulting softened demand for transatlantic travel. But in addition to concerns about safety and security, there’s a new worry for would-be travelers: a sharp rise in the price of oil, due in part to sanctions that have been slapped on Russia.
The price of a barrel of crude oil, the most common measure used to track trends, went from well below $100 in 2021 to $127 in recent weeks. The cost of jet fuel, the airlines’ second highest expense after labor, has risen nearly 50 percent the past few months, from $2.46 a gallon to around $3.60, the highest price it has been since 2014.
This time around, airfares were already on the rise when the oil price shock hit the world with pent-up demand and an easing of COVID restrictions having triggered a rise in ticket sales. “The reality is that you are paying more because planes are full,” says Peter Vlitas, executive vice president, partner relations at travel advisor network Internova Travel Group, and a long-time observer of the airline industry. Plus, he notes, “The airlines haven’t put all their planes back in the sky,” and they may hold back now until the situation becomes clearer.
According to the latest data from flight booking app Hopper, average domestic airfares have risen from $236 at the beginning of 2022 to nearly $320 round-trip in mid-March, representing a 35 percent jump. Average airfares from the U.S. to Europe rose from $663 to $770 round-trip between February and March, Hopper reported, although that doesn’t reflect a more recent fall-off in search activity for transatlantic flights, likely due to concerns about the Russia-Ukraine conflict.
Other analysts agree that the extent of the price hikes and how long they’ll last are anyone’s guess, given the unpredictability of world events.
Typically, it takes three to four months for the impact of a sharp rise in oil costs to have a noticeable impact on airline prices, Helane Becker, an airline analyst at Cowen Inc., said in a recent research note to clients. So that means that not all airfares will be rising in lockstep.
Consumers should keep in mind that airfares have been relatively stable in recent years, says Michael Derchin, an airline analyst who pens the Heard in the Hangar newsletter. “Domestic air travel prices increased only 9 percent from 2010 to 2019,” he says, noting that that’s “substantially lower” than the inflation rate for many other leisure goods and services, like the cost of dining out in a restaurant or staying in a hotel (which went up 26 percent and 24 percent, respectively, during the same time period).
Hopper economist Adit Damodaran points out that the impact of fuel price hikes can affect individual airlines in different ways. “The impact of jet fuel price increases can vary significantly between carriers,” he says, adding that a lot a depends on the age of their fleets.
And whatever impact is felt will be greatest on long-distance flights, notes Paul Tumpowsky, founder and CEO of Skylark, a Virtuoso travel agency in New York. He points out that on the longest flights, the recent spike in oil prices could add tens of thousands of dollars to a single flight’s operating expenses.
Ultimately, what happens to airfares may come down to the basic economic principle of supply and demand. If airlines raise fares too high, that could discourage potential customers from flying. “Leisure travel has come back, but those are the most price-sensitive customers,” says Tumpowsky. And those travelers might balk at steep fares and choose to stay home and wait it out or drive instead (despite the extortionate rates at the pump, too).
Bottom line: Fliers can still find bargains, he says, but COVID-driven deep discounts may be over. Travel experts say the best strategies for finding more competitive fares include signing up for price-monitoring services, such as flight deals newsletter Scott’s Cheap Flights; setting up Google flight alerts; getting the apps for the airlines you’re mostly likely to fly with and sign up for deal alerts; not waiting to book because you think a better fare will come along. In this climate, that’s a gamble that many travelers are unlikely to win.
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