Airlines have been raising fares left and right – and hiking fees, too – as jet fuel costs have more than doubled over the last month since the breakout of war in Iran. But just because oil prices are finally on the decline amid some positive movement toward peace in the Middle East, don't expect fares to drop overnight … or anytime soon.
That's the message Delta delivered to investors Wednesday, with CEO Ed Bastian suggesting that both fuel prices and fares would remain elevated into the summer – and perhaps beyond. The airlines call it “fuel recapture,” and it's well underway, to the delight of shareholders … and much to the chagrin of everyday travelers.
“We do expect, hopefully, that fuel settles down. Now, it’ll settle down at a higher level. So fuel recapture is going to be important no matter what we do,” Bastian said. “It’s going to take more than the current quarter. We’re going to continue to see a much higher percentage as we move into summer.”
Translation? Higher fares are here to stay – at least for now.
After competitors like JetBlue and United moved first on fees, Delta raised baggage fees this week by $10 to at least $45 each way. That move alone could pull in hundreds of of millions of dollars in additional revenue.
Pinning down exactly how much fares are up, though, is tough work because airfare is not a monolith. It's millions upon millions of flights – some of which go up in price, some stay the same, and others are still going down. Yes: Despite the headlines, we're still finding plenty of deals.
But the anecdotal evidence is overwhelming. Both domestically and internationally, airfares have ticked up fast. One major U.S. airline CEO pegged the increases between 15% to 20% … and that was weeks ago, when jet fuel prices were lower than they are today.
Frustrating though it may be for travel-lovers on the hunt for better deals, higher fares are an unfortunate economic reality of the current situation.
Fuel is one of airlines’ biggest expenses, second only to labor. And those costs have more than doubled over the last month, with data from the Argus U.S. Jet Fuel Index showing prices at $4.80 per gallon – up from the previous $2.40-ish range in late February.
For Delta, that means the airline is planning to spend an extra $2 billion on fuel over the next three months alone. And Delta may have it better than its competitors: Unlike the others, Delta owns and operates its own refining facility – an estimated $300 million benefit.
Yet higher costs are ultimately a relatively small factor in what drives fares up and down. It's much more about the simple law of supply and demand … and that is in Delta's favor, too.
Bastian repeatedly stressed on Wednesday that passengers haven't balked at higher fares, saying that bookings throughout March and early April are “the strongest period we've ever seen.” And he specifically referenced the “premium” travelers Delta has spent the last decade courting, saying they're not put off by higher fares or even conflict in the Middle East.
“The higher-end consumer, the premium consumer, is, candidly … becoming more immune to the headlines and not delaying their investment in the experience economy, waiting to see what the next headline is going to be,” Bastian said. “It’s not affecting individuals’ lives in a meaningful way. As difficult as it is to see what’s going on with the conflict in the Middle East, I’m not sure that our premium customers are feeling the effects of that.”
So long as Delta can bank on wealthy travelers, especially business road warriors, filling its planes, it has all the pricing power it needs to keep fares higher for longer.
What You Can Do
Not all is lost, travelers.
While higher airfare is part of our new normal – and may be for weeks or even months – you can still find a better bargain by:
- Booking sooner rather than later. Even if fuel costs continue to drop, fares are more likely to remain high or even rise as airlines try to cover their increased costs.
- But book a main cabin economy fare – not basic economy. That way, you can lock in a fare today and rebook, pocketing the difference as a voucher if prices do, in fact, drop later on.
- Use Google Flights Explore. This tool is invaluable for finding the best bargain possible – on any airline.
- Turn to your miles! Discounted Delta fares are few and far between lately, but the mileage deals just keep coming – and they get you even more bang for your buck with prices elevated right now. That includes some outstanding Delta SkyMiles flash sales as well as Delta flights bookable through an amazing workaround with Air France/KLM Flying Blue miles.
Bottom Line
It's exactly what investors love to hear … and we hate to see it.
Delta's CEO made it clear on Wednesday that the higher fares that have taken hold these last few weeks won't subside anytime soon. And even if fuel prices continue to drop in the days and weeks ahead, Delta is clearly planning for those costs to remain higher than they were just a few weeks ago.
