Get ready for higher fares: Airlines bet surge in travel demand will help offset fuel costs

Get ready for higher fares: Airlines bet surge in travel demand will help offset fuel costs


American Airlines planes at LaGuardia Airport

Leslie Josephs | CNBC

Travel demand has bounced back faster than expected this year, major airlines said Tuesday, a welcome trend for an industry battered by Covid and a sign that carriers expect to pass along higher fuel prices and other costs on to customers.

U.S. jet fuel prices last week surged to 2008 highs, propelled by Russia’s invasion of Ukraine, which sparked worries about scarcer crude supplies as countries sanctioned the oil producer. Though jet fuel prices have eased, they’re still up 35% so far this year.

The mix of stronger demand and higher costs is promising more expensive tickets, which were already on the rise before Russia’s attack on Ukraine and generally rise during peak spring and summer travel periods.

“We are very, very confident of our ability to recapture over 100% of the fuel price run-up in the second quarter and through probably the end of the summer,” Delta Air Lines President Glen Hauenstein said during a JPMorgan investor conference.

Customers last month spent $6.6 billion on airline tickets on carriers’ websites, the first time in the pandemic both bookings and sales surpassed a similar pre-Covid month, Adobe said Tuesday. Average fares sold by U.S. travel agencies rose to $464 in February from $409 a month earlier, according to the Airlines Reporting Corp.

Delta reiterated that bookings are outpacing 2019 and Hauenstein said the airline last week had its highest one-day cash sales in its more than 90-year history.

Delta said it expects first-quarter sales to come in at 78% of 2019 levels, up from its forecast in January for a recovery of as little as 72% of 2019 levels. (Airlines have been comparing revenue and capacity to 2019 to show how much they have recovered since before the pandemic.)

American Airlines said it expects first-quarter revenue to be off 17% from 2019, better than its January forecast for a two-year drop of as much as 22%.

CEO Doug Parker said at the same conference that revenue on two different days last week was up 15% compared with 2019, even with a sluggish recovery in business travel and long-haul international trips, usually two big moneymakers for large airlines.

“We can make money at oil prices of $100 a barrel or higher, and we will,” said Parker, who hands the reins to company President Robert Isom at the end of the month. “It may have short-term impact. But it is not a long-term impact on the industry’s ability to make money.”

American said in a filing that it expects first-quarter capacity to be as much as 12% below the same period in 2019, a smaller schedule than the 8% to 10% drop over three years earlier that it forecast two months ago.

Lower capacity often means fewer seats for travelers to choose from, which can drive up prices.

Airline shares rose across the board Tuesday. Delta, American and United were each up about 7% in early afternoon trading outpacing the S&P 500’s 1.7% gain.

United Airlines, which has been more conservative compared with some of its peers during the pandemic, said it expects its 2022 schedule to be down by the “high single digits” compared with 2019. But, the Chicago-based airline said it projects first-quarter revenue to “be near the better end” of guidance for a 75% to 80% recovery from three years earlier.

“System bookings for future travel have improved close to 40 points since the first week of 2022 and business traffic has increased more than 30 points since the peak of the Omicron impact in January 2022,” United said in a filing.

Southwest Airlines raised its revenue outlook to as much as 92% recovered from 2019 levels. Its shares were 3% higher in early afternoon trading.



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