The $100 billion detour

Airlines have spent years trying to get passengers to pay for checked bags, seat selection, and even a bottle of water. Now companies are staring down a cost that’s harder to charge for: soaring fuel prices.

According to the International Air Transport Association, average jet fuel prices are expected to be a whopping 70% higher than a year ago, pushing the industry’s fuel bill up by $100 billion.

That surge could cut global airline profits in half this year, to just $23 billion. North American carriers are still projected to generate a large share of those earnings at $9.4 billion, though that’s down sharply from $12.4 billion last year.

A tale of two carriers

The pain will be felt most acutely by airlines with thin balance sheets and those operating in the Gulf region, where conflict has disrupted routes and demand. Budget carrier Spirit Airlines became an early casualty, suspending operations last month, while European carriers including EasyJet, Lufthansa, and Ryanair warned that rising fuel costs could weigh on already-slim profits. Back in April, a group of US budget airlines including Frontier and Avelo even sought a $2.5 billion government bailout, though the request was rejected. Meanwhile, struggling American Airlines paused even more domestic routes today thanks to fuel costs.

But for some larger carriers, especially those based in the US, the outlook is less dire. Airlines like United and Delta serve wealthier travelers who are more willing to absorb higher fares, while disruptions at Middle Eastern rivals like Emirates and Qatar have created an opportunity to capture displaced demand. According to Flightradar24, United and Delta have increased long-haul widebody flying by 11% and 12%, respectively.

Turbulence ahead

Fuel costs may not be coming down anytime soon. Crude oil prices rose another 2.39% today after Iran and Israel renewed hostilities, trading fire for the first time since April. While fighting has since halted, the latest flare-up is a reminder that tensions in the region can reignite quickly.—SY