A $49 one-way from Chicago to Los Angeles on a budget carrier. A $299 round trip flight from San Francisco to New York City. A $399 transatlantic flight from Miami to Frankfurt. Those are deals that are increasingly hard to find. In fact, they might be going extinct.
Earlier this month, Delta CEO Ed Bastian warned that airfares might not come back down after the Iran War, which could be a precursor to permanently higher airfares. He added that more premium customers are not “feeling affected” by higher oil prices created by the Trump Administration’s ambitions in the Middle East.
The comments drummed up controversy, especially among U.S. consumers who already say they’re squeezed by the creep of higher prices brought on by Corporate America since the pandemic and subsequent row of inflation. But Delta is no longer the lone villain.
Everybody seeks to copy
As other U.S. airlines have reported in recent days, it’s increasingly evident that this “copycat industry” is seizing on the moment.
On Tuesday, as Alaska Air Group suspended its 2026 guidance, CEO Ben Minicucci said in its earnings call that, “Some of these fare increases are sticking.”
The airline has raised the average fare by about $25 while also raising bag fees, but Alaska’s Chief Commercial Officer said that despite higher prices, planes remain full. It’s also opening up new international destinations despite the headwinds.
United Airlines echoed the commentary as it announced it would reduce capacity by 5% from expectations, while cutting its full-year forecast as a result of higher fuel prices. CEO Scott Kirby said that fares would “need to increase by about 15% to 20%” as it looks to recover the higher fuel costs completely.
And notably, United Chief Commercial Officer Andrew Nocella warned: “I think the longer the price of fuel remains in this range, and the longer consumers pay these prices and airlines get used to this revenue stream, the more likely it is to stick.”
Playing catch-up from inflation station
While airfares have risen significantly year-over-year as a result of higher jet fuel costs, airfares have lagged the rate of inflation this century, according to data from the Bureau of Transportation Statistics and the Bureau of Labor Statistics.
A report published by Deutsche Bank analyst Michael Linenberg underscores that trend during the pandemic, saying that “Airfares have meaningfully lagged inflation.”
However, airfares are once again on the rise. This time, they’re likely to outstrip inflation, making airlines’ recent moves look like a form of “catch up” after years of absorbing higher costs.
In March, data from the Consumer Price Index (CPI) showed that Airline Fares reached $291.073 on average, the highest since Oct. 2022. Back then, the world was battling a similar exogenic oil shock after Russia invaded Ukraine, stoking an explosion in energy prices. The price of Crude oil surpassed $100/bbl.
The same thing has happened with the U.S. and Israel’s incursions in Iran, with Crude Oil Futures entering the three-figures. However, the price of Dated Brent (that is, oil that is coming for delivery now) is significantly higher; in some parts of the world, it is upwards of $200/bbl. This means that futures might not be adequately pricing reality.
It’s all about the money
Aside from the brief period of time that the global economy was grounded, airlines have not made fantastic investments. In fact, over the last five years, the U.S. Global Jets ETF ($JETS) has returned -0.77%. (Compare that with the S&P 500‘s 70% return over the same period.)
As a result, many are doubling down on credit programs and expanding the number of premium seats on their aircraft; an effort that has proven successful for U.S. carriers such as Delta and United.
These efforts have not just helped the airlines diversify their revenue but also set lofty financial goals. United is seeking a 10% pre-tax margin by 2027. Delta is seeking $1 billion in quarterly profit, which it could achieve in the current Q2 2026 quarter. Other airlines are chasing similar goals.
And most importantly, they don’t plan to be deterred by high oil prices. In fact, they seek to pass along 100% of the higher fuel costs to customers, staying the course on their financials. Of course, that means flyers will have to make up the difference.
