Jetting Upward: Fuel Costs Could Raise Airfares

Long airport lines aren't the only issue facing travelers these days. Rising oil prices due to the conflict in Iran could also lead to higher airfares. United Airlines CEO Scott Kirby issued that warning over the weekend, telling CNBC rising fuel prices could lead to an uptick in ticket prices. "It will probably start quick, and if it continues, we'll feel it in (the second quarter) also," said Kirby.

At issue is rising crude oil prices, which surged over $100 a barrel in recent days as cargo and tanker ships avoid the Strait of Hormuz due to the Iranian hostilities. Since jet fuel accounts for 25-30% of airlines' operating costs, a rise in fuel price would be felt quickly. "The price of fuel is skyrocketing for the airlines, it's their largest cost after labor...and that cost is going to be passed on to the consumer," says Steve Cowell, aviation expert with SRC Aviation, LLC. "It is another byproduct of what's going on in the Middle East."

Cowell tells KTRH that if the price of crude oil goes up, there is nothing airlines can do to avoid the impact, regardless of whether that oil is going to the U.S. or Europe. "Oil is a worldwide commodity," he says. "The price of oil cannot be controlled solely by the United States...there are too many factors both economical and geopolitical."

The price of crude started to come down again late Monday, as President Trump signaled the Iranian conflict may be over soon and the U.S. could protect the Strait of Hormuz. But with prices surging more than $40 in either direction just since last week, the markets are far from settled. "It's the volatility," says Cowell.

Cowell also warns the impact of oil prices doesn't show up immediately, since airlines purchase fuel several months in advance. "The current pricing for jet fuel was established many months ago, while pricing for the future is being established now," he says. "Airlines are having to buy jet fuel at dramatically increased prices, and that is going to carry forward...and that could start with the summer travel season."