Jet Fuel Is 40% Cheaper. So Why Aren’t Flights?

Jet fuel prices have fallen 40% since peaking in April, but airlines say strong demand and limited supply are keeping fares elevated despite lower fuel costs.

Fuel is one of an airline’s largest expenses, and carriers often cite rising fuel prices as a reason for increasing fares. But airline executives say strong demand has kept the fares high even as fuel costs have declined, boosting profit margins.

“I’m actually very bullish that the industry will retain a much higher percentage of the fare increases than would be typical historically,” Southwest Airlines CEO Bob Jordan said in May.

Delta CEO Ed Bastian echoed that sentiment, saying the airline expects to keep fares high. 

“Fuel recapture is going to be important no matter what we do, and the degree to which we can retain any of the pricing strength that we talked about from industry rationalization, that will certainly help us boost our margins this year and clearly into next year as well.” 

Bastian said Delta’s higher fares are projected to recapture only 40-50% of the roughly $2 billion headwind the airline faced in the second quarter. He argued fares are unlikely to fall until airlines can add more capacity.

“Prices will come down when we can fly more, when there’s more supply, it’s a supply and demand. Right now we’re kind of logjammed,” Bastian said.

He attributed part of that bottleneck to congestion in the nation’s air traffic control system.

“As you open up the skies, and you bring more flow, that’s going to help bring pricing down and enable us to bring more people to more places.”

The current pricing environment resembles the pattern following the 2022 spike in oil prices, when West Texas Intermediate crude, the U.S. benchmark for oil, traded near $120 per barrel.

After fuel prices began falling in early 2023, Delta President Glen Hauenstein told investors the company intended to maintain the fare increases for as long as possible. 

“As we think about how we do fuel recapture on the way up… we are going to keep as much of it as we can.” 

Southwest executives struck a similar tone. During its January 2023 earnings call, Chief Commercial Officer Ryan Green said, “It’s a strong fare environment now, and, you know, I expect that to continue.”

Since the COVID-19 pandemic, consumers have shifted more of their discretionary spending toward the “experience economy,” which has helped keep demand for travel strong.