Will Airfare Prices Soar This Year?

Almost a month after Russia invaded Ukraine on February 24, the global airline sector still grapples with the consequences of the resulting decline in transatlantic travel demand. Alongside safety and security concerns, another significant worry for potential travelers is the sharp increase in oil prices, partly due to sanctions imposed on Russia.

The cost of a barrel of crude oil, commonly used to monitor market trends, surged from below $100 in 2021 to $127 recently. The price of jet fuel, the second-largest expense for airlines after labor, has jumped nearly 50% in the past few months, rising from $2.46 per gallon to around $3.60, the highest level since 2014.

Currently, airfares were already climbing when the oil price spike struck, fueled by pent-up demand and relaxed COVID restrictions boosting ticket sales. “The reality is that you are paying more because flights are full,” says Peter Vlitas, executive vice president at travel advisory network Internova Travel Group, a long-time observer of the airline industry. Additionally, he points out, “Airlines haven’t reinstated all their planes yet,” and may continue to hold back until the situation stabilizes.

As per the latest figures from flight booking app Hopper, average domestic airfares increased from $236 at the start of 2022 to nearly $320 for round trips by mid-March, reflecting a 35% rise. Average fares for trips from the U.S. to Europe climbed from $663 to $770 round-trip between February and March, according to Hopper, though this does not account for a recent decline in search activity for transatlantic flights, likely due to worries over the Russia-Ukraine conflict.

Other experts concur that predicting the magnitude of price increases and their duration is uncertain, given the volatile nature of global events.

Typically, it takes about three to four months for a sharp rise in oil prices to visibly affect airline fares, according to Helane Becker, an airline analyst at Cowen Inc., in a recent client research note. This suggests that not all airfares will increase simultaneously.

Consumers should remember that airfares have remained relatively stable in recent years, says Michael Derchin, an airline analyst who writes the Heard in the Hangar newsletter. “Domestic air travel prices rose only 9% from 2010 to 2019,” he points out, emphasizing that this is “significantly lower” than the inflation rates for many other leisure items, such as dining out or hotel stays, which increased by 26% and 24%, respectively, during the same timeframe.

Hopper economist Adit Damodaran highlights that the effects of fuel price increases can vary greatly among airlines. “The impact of rising jet fuel prices can differ significantly between carriers,” he explains, noting that much depends on the age of their aircraft fleets.

The effects will be most pronounced on long-haul flights, notes Paul Tumpowsky, founder and CEO of Skylark, a Virtuoso travel agency based in New York. He mentions that for the longest flights, the recent surge in oil prices could add tens of thousands of dollars to the operating costs of a single flight.

Ultimately, the fate of airfares may hinge on the fundamental economic principle of supply and demand. If airlines set prices too high, it could deter potential customers from flying. “Leisure travel has rebounded, but these travelers are the most price-sensitive,” Tumpowsky explains. Those customers might shy away from steep prices, opting to stay home or drive instead, even with high gas prices.

In summary, travelers can still score good deals, but the era of COVID-induced discounts might be coming to an end. Experts recommend strategies for securing better fares, such as subscribing to price-monitoring services like the flight deals newsletter Scott’s Cheap Flights; setting up Google flight alerts; downloading airline apps for your preferred carriers and signing up for deal notifications; and not delaying bookings in hopes of finding lower fares later, as that’s a risky gamble in the current market.