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Airfares will not fall even if oil prices start to fall, American Airlines has warned, as the world’s largest carrier said it expected to post a loss for the year due to rising fuel costs.
“If fuel goes down, I think airfares will probably stay largely where they are now,” US CFO Devon May told the FT. “If fuel prices go up, we need to generate higher returns, we need to generate higher rates to offset that increase in fuel prices. »
Although airlines have sharply increased fares since the war in Iran led to a doubling of global jet fuel prices, May said ticket prices had not fully recovered in real terms after the Covid-19 pandemic.
“This (price increase) should have ideally happened in 2024, but the sector found itself in an environment of oversupply… This was the first year where everything came together in such a way that we were able to get yields back to where they were seven years ago in real terms.”
American on Thursday reported a 19 percent increase in third-quarter revenue compared to the same period last year, fueled by a 23 percent increase in premium travel sales and a 28 percent increase in business-related revenue.
But with high jet fuel prices imposing an additional cost of $1.9 billion in the third quarter, the airline cut its profit forecast to a loss of between $1 and $1.60 per share.
US rival Delta Air Lines also cut its profit outlook earlier this month despite a 16 percent year-on-year rise in third-quarter revenue, while United Airlines reported a fuel-related loss of $1.8 billion, 72 percent of which it managed to recoup thanks to rising ticket prices.
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Airline executives highlighted the resilience of demand despite rising prices. Delta said it raised prices by about a fifth without any noticeable change in sales.
Major U.S. carriers have also benefited from growing demand for premium travel as wealthier consumers ignore rising ticket prices. Airlines have rushed to offer upgraded cabins, lounges and perks such as premium wines and champagnes.
Andrew Nocella, United’s chief commercial officer, told investors Wednesday that “consumers and businesses have accepted the price increases, which we believe are the result of fares lagging behind the rest of inflation as well as other aspects of travel costs for many years.”
But he noted that leisure travel seat occupancy fell 1.3 percent in the third quarter, describing it as “a slight elasticity given rising ticket prices, a trade we would do every day.”
U.S. airlines have been more exposed to fuel changes than their European and Asian rivals, which were largely hedged against fuel price fluctuations.
However, the industry enters next year with fewer hedges in place, with carriers reluctant to enter into new contracts while jet fuel costs remain high.
Some industry leaders have warned that travelers should expect ticket prices to rise again next year. Ryanair chief executive Michael O’Leary told the FT last month they could increase by up to a fifth next summer.
Major carriers, including Latam, the region’s largest carrier, and ITA Airways, Italy’s flagship carrier, said last week they expected prices to rise in the coming year.
Dan Akins, a U.S.-based aviation economist at Flightpath Economics, said major carriers are “making do with what they can,” citing a lack of competition in the U.S. market and financial pressure on low-cost airlines.
“The big four U.S. companies are perfectly happy to continue charging people as long as demand persists,” he said.
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