Airfare is spiking, and the price travelers pay to fly may not be coming down any time soon.
United Airlines on Wednesday said it has increased prices five times since the start of the global run-up in oil prices — which has sent jet fuel costs skyrocketing.
United was also among the first in a parade of U.S. airlines to hike checked bag fees, which now start at $45 for the first bag.
Together, these moves have hit the wallets of consumers hoping to book summer trips as airlines have sought to pass the higher costs onto passengers.
And the Chicago-based carrier is giving customers plenty of reason to think higher prices may be here to stay for many months to come.
“We are assuming fuel may remain higher for longer,” CEO Scott Kirby said on the company’s first-quarter earnings call Wednesday, alluding to the uncertainty in the Middle East that triggered the worldwide spike in oil prices.
Why airfare may not drop anytime soon
Even if oil prices begin to cool in the coming months, it’s not clear when — or if — customers will get much price relief when they go to book a flight.
For starters, airlines seldom lower baggage fees; once they go up, they typically stay up.
And while fares regularly fluctuate, United executives suggested that industry-wide flight prices could remain elevated beyond the current global oil crunch.
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“I think the longer the price of fuel remains in this range, and the longer consumers pay these prices — and airlines get used to this revenue stream — the more likely it is to stick,” United Chief Commercial Officer Andrew Nocella told analysts Wednesday.
That’s certainly not welcome news to consumers, who have simultaneously faced skyrocketing prices at the gas pump.
And it’s not just United saying this.
In recent weeks, numerous airline executives and Wall Street analysts have pointed out that fares this decade have climbed far less sharply than prices in other sectors of the economy.
“Airfares have meaningfully lagged inflation over the past six years,” Deutsche Bank analyst Michael Linenberg wrote in a report earlier this month.
For that reason, airlines — especially U.S. carriers that have turned in lackluster financial results in recent years — could potentially see an opening to charge customers more in hopes of boosting their earnings, Nocella said Wednesday.
“I think airlines want to return 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 fare increases would be short-lived, that’s probably not great news to hear.
Fuel-driven flight cancellations on the way
Of course, as prices climb, some customers will pull back on booking travel.
United said it hasn’t seen a notable drop in demand, but it reiterated its plans to cut about 5% of flights through the end of the year.
The carrier plans to mostly cut “marginal” flying on less popular travel days like Tuesdays, Wednesdays and Saturdays. Expect to see some domestic red-eyes get the ax, too.
Travelers booked for this summer should expect to see United’s cancellations roll in over the next week or so, executives said.
Bottom line
TPG is keeping tabs on the growing number of U.S. and international airlines that have begun slashing flights as a result of higher fuel prices.
While your airline will likely rebook you on a different flight if your departure gets canceled, you don’t have to go along with 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. The refund rules also apply to flights that are significantly delayed or encounter major schedule changes.
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Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: thepointsguy.com
