- US jet-fuel prices have risen to pre-pandemic levels.
- Air travelers have returned in large numbers, but the higher costs are causing further losses in airlines’ revenue.
- Higher airfares may follow.
There is a growing demand for air travel ahead of the holidays. So are the costs.
But jet fuel hasn’t been that expensive since 2014. Airlines are also rushing to hire thousands of employees to meet growing demand: pilots, flight attendants, reservation agents, baggage handlers and many others, competing in a tight labor market that seemed impossible in the early days of the pandemic. In.
And, airlines have garnered more than $54 billion in government payroll aid that helped cover their labor bills during the pandemic.
Escalating costs are threatening the industry’s attempt to return to profits, losing a record $35 billion last year when the pandemic shattered a decade’s worth of profits. For travelers, the combination of return demand and higher costs could mean more expensive onward ticket prices.
Delta Air Lines said last month that higher jet-fuel prices would weigh on its bottom line in the fourth quarter. Frontier Airlines on Wednesday forecast a loss on an adjusted basis for the fourth quarter due to higher fuel costs.
Benchmark US jet fuel was $2.27 a gallon on November 10, jumping 25% in three months.
“The rise in fuel prices is “definitely delaying earnings recovery,” said Savanti Sith, an airline analyst at Raymond James. This is not a good move in this short period.”
Airlines eager to capitalize on the return on demand have tried to balance - with varying degrees of success - how much they can fly with their current staffing levels.
Overall, US carriers would fly about 6% less in November and December than in 2019, according to aviation data and consulting firm Cerium, before the pandemic. The exceptions are low-cost airlines such as Frontier and Spirit Airlines, which have their capacity set higher than they were two years ago.
The ramp-up has been a blast. Spirit, Southwest Airlines and American Airlines each have had massive cancellations since late July, many of them due to staff shortages that make it harder to recover from routine issues like the weather. Spirit and Southwest had cut some of their schedules to give themselves more roomy room in case something went wrong. Southwest has also increased the ranks of the backup crew with new hires and more employees coming back from vacation. Over the weekend, Southwest offered 120,000 frequent flyer miles to flight attendants, ground crew and others to work certain shifts over the next two months, worth more than $1,400.
American, for its part, is offering flight attendants a minimum of 50% higher pay for working holiday trips and triple pay if they even have the right attendance at the beginning of January. It is also offering a $1,000 attendance bonus to other groups across the company and in its regional subsidiaries. However, pilots turned down the offer of double pay for the busiest flights, saying airlines need more permanent reforms in their scheduling.
"All of these can ensure smooth operation and cost less than any potential operational disruption," Bank of America airline analyst Andrew Didora wrote in a note on Wednesday.
Airfares have not fully caught up with the rise in costs, partly because international and corporate travel are still below pre-pandemic levels. Despite a jump in consumer prices, the Labor Department reported last week, airfare was down 4.6% from a year earlier, though they rose 3.5% from September to October.
While many airlines are chasing customers with fare sales, basement fares began to drop in the spring, and some 2019 prices are starting to bounce back.
According to fare-tracking app Hopper, domestic fares for a roundtrip around Thanksgiving will average $290, down 13% from 2019 and Christmas fares are set at $390, the equivalent of two years ago.
Airline executives have said that holiday bookings are strong and they do not expect disruption. According to a report by Adobe published on Wednesday, US airline bookings between November 20 and November 25 are up 78% from last year and 3% compared to 2019.
Travelers interested in avoiding the airport altogether and driving on vacation may find they'll pay more than they did last year. According to AAA, US gasoline prices average $3.415 per gallon, up 60% from a year ago.
"Our revenue management team is fully aware of the price of gas," Frontier Airlines CEO Barry Biffle said on a quarterly call Wednesday, widely referring to the increase in energy costs. "They even fill up their cars."
—CNBC's Nate Ratner contributed to this article.