Jet fuel doubled, airfares spiked, and travelers are still buying tickets like nothing happened. That's the picture U.S. airline executives painted on earnings calls this month, and it's the only reason the industry is still in one piece after two months of war in the Middle East.
Jet fuel prices started climbing in late February when U.S. and Israeli strikes on Iran effectively shut down the Strait of Hormuz. Fuel is the second-biggest bill airlines pay, right behind worker pay.
The Iran war has added more than $6 billion to U.S. airline costs this year, and to cover it, carriers raised fares and trimmed seats.
So far, customers are paying. Travel-agency ticket sales rose 12% in March from a year earlier to $10.4 billion, according to the Airlines Reporting Corp.
Domestic economy fares averaged $570, up 21% year over year, while premium seats hit $1,444, up 17%.
"Bookings have remained resilient amidst these changes, which is an encouraging sign," JetBlue CEO Joanna Geraghty said Tuesday.
The big carriers are doing the best of the bunch.
JetBlue (JBLU +0.39%) forecast Q2 revenue up as much as 11% from a year earlier, even as Geraghty called the war the industry's biggest hit since Covid. American (AAL) expects a 13.5% to 16.5% jump.
Delta (DAL +0.12%) and United (UAL -0.20%), which together earn most of the industry's profit, were also upbeat as premium seats and first class do the work. Those tickets cost thousands more than economy.
Low-cost carriers don't have that cushion, which is why Frontier (ULCC -0.26%) and Avelo, through the Association of Value Airlines, asked the Trump administration this week for $2.5 billion in fuel relief.
Frontier briefs Wall Street next week and will likely face questions about how it covers higher costs with lower fares.
UBS airline analyst Atul Maheswari wrote Monday that there's room for fares to keep rising because air ticket prices have actually grown well below general inflation since Covid.
"This could drive significant earnings growth and margin expansion for airlines in 2027 should jet fuel prices moderate," Maheswari wrote, with the catch being that demand has to hold. Even if oil drops, jet fuel relief takes time, since refining and shipping costs lag the crude price.
Airline executives expect customers to fully absorb higher fuel costs by early 2027 - if not the end of this year. The summer booking window is the next real test, with peak demand now ending in August instead of September.
