Fuel costs surge by 80%, United Airlines can't hold on: Ticket prices will "skyrocket" this summer

Rising fuel costs combined with geopolitical conflicts are pushing this summer’s air travel toward a price storm.

Scott Kirby, CEO of United Airlines, said that since the late-previous month the Middle East conflict broke out, the New York Buckeye pipeline jet fuel benchmark price has risen by more than 80% in total. He said clearly that fares need to increase by at least 20% to cover the added costs, and urged travelers to complete their bookings as early as possible before prices rise further.

Citing data from the research firm Alton Aviation as reported by Bloomberg, long-haul routes from Asia-Pacific to Europe saw June fares surge by 70% compared with the same period last year, with some routes experiencing even more dramatic increases. Analysts at Deutsche Bank and UBS issued back-to-back warnings that airlines may be forced to cut capacity to cope with cost pressure, and the resulting dual squeeze in supply and demand could deal a major blow to summer travel demand.

Fuel prices have surged, and the transmission pressure to fares is obvious

According to Bloomberg, Alton Aviation data shows that long-haul route fares have already jumped significantly first. Taking the June fares on Asia-Pacific-to-Europe routes as an example, flights from Hong Kong to London rose 560%, Bangkok to Frankfurt increased 505%, and Sydney to London went up 429%, reflecting the far-reaching impact of the conflict on the costs and capacity of routing around the Middle East.

Bryan Terry, Managing Director of Alton Aviation, said: “What we’re seeing isn’t just a short-term pricing shock. Even if the immediate disruptions ease, longer rerouting around the routes, tighter capacity, and higher fuel costs will still keep exerting upward pressure on fares over a longer period.” He added that the cooling effect from jet fuel prices could take as long as three months to fully work its way through the supply chain.

Demand is already cooling, and airlines face capacity tradeoffs

Booking data shows that weakening signals on the demand side are already emerging. Cirium data shows that June travel bookings from Europe to the United States fell 15% year over year, bookings from the United States to Europe dropped 11%, and bookings from Asia to Europe declined 4.4%, including routes that involve connections via the Middle East.

Against this backdrop, analysts at Deutsche Bank and UBS both issued warnings, saying airlines may need to proactively reduce capacity to offset rising fuel costs. With capacity cuts and fare increases piling on top of each other, it could create a negative feedback loop that suppresses demand—when consumers face high fares, they experience a “price shock,” which then reduces travel plans, leaving airlines stuck in a volume-and-price dilemma.

In capital markets, the S&P 500 airline stocks index has recently shown a technical breakdown, indicating that the market is already pricing in expectations of a deterioration in the industry’s fundamentals in advance.

Price pressure may last for months, not just a short-term disruption

The report says that based on assessments from multiple sides, this round of cost pressure in the aviation industry is not a temporary phenomenon. Alton Aviation’s Terry made it clear that the full transmission cycle from fuel prices to fares is about three months, meaning that even if the geopolitical situation eases, consumers will still continue to face high fare pressure during the summer peak travel season.

The added flying time caused by rerouting, the real loss of transit capacity through the Middle East, and delays in adjustments to global jet fuel market supply-chain arrangements together provide structural support for fare increases. In Deutsche Bank and UBS’s view, cutting capacity is almost a necessary option for airlines under the current cost environment, which will further compress space on the supply side, forming a market pattern where fares are easy to rise and hard to fall.