Airlines cut flights and raise fees as jet fuel nears $5 a gallon

Jet fuel in the U.S. fetched $4.88 a gallon on April 2, up from $2.50 a gallon on Feb. 27 — a near-doubling in price tied to the outbreak of war with Iran — prompting carriers at home and abroad to pare schedules and tack on higher checked baggage fees, according to CNBC. The spike has hit some regions harder than the U.S., and the effective blockage of the Strait of Hormuz has begun strangling the flow of crude oil and refined fuels to global markets.

Delta, JetBlue Airways, and United Airlines have each raised checked baggage fees in recent days. United Airlines CEO Scott Kirby, speaking to reporters, said United — the top U.S. carrier by Asian route volume — faces unavoidable reductions to that flying. He added it is “not impossible” that airlines collectively would reduce service there.

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In a message to staff dated March 20, Kirby announced schedule reductions. “There’s no point in burning cash in the near term on flying that just can’t absorb these fuel costs,” he wrote. The airline is preparing for oil to remain above $100 a barrel through 2027.

At Lufthansa, CEO Carsten Spohr has put dedicated teams to work on scenarios arising from the Middle East war — among them demand slumps and potential shortfalls in fuel availability — according to CNBC, citing a company spokesman who described a webcast Spohr held with staff. Those plans could include grounding aircraft.

A UBS report tracking the week ended March 20 found that second-quarter domestic seat growth for U.S. airlines had slipped to 2.1% from a previously planned 2.3%, with overall capacity expansion falling even more sharply, to 1.1% from 2.4%. The bank forecast additional cutbacks ahead.

Fuel is generally airlines’ largest expense after labor. Savanthi Syth, who covers airlines at Raymond James $RJF -0.33%, cautioned that sustained prices around $4 to $4.50 a gallon exceed what carriers can reliably recover through higher fares. “If fuel stays high, you’ll just see capacity being cut,” she told CNBC. Joseph Rohlena of Fitch Ratings, whose portfolio includes U.S. carriers, warned that a prolonged stretch at today’s fuel prices could be enough to put airline credit ratings at risk.

Airlines outside the U.S. have also moved to raise fares, with carriers including Air India, Qantas, and Thai Airways announcing ticket price increases or higher fuel surcharges since the conflict began. Qantas fares are expected to rise around 5%, while Thai Airways has said fares will increase between 10% and 15%. Longer routes required by closed Middle East airspace have added to fuel consumption across the industry.

Despite the cost pressures, airline executives have said travel demand remains strong. Delta and American Airlines each raised their first-quarter revenue forecasts earlier this week, with both carriers saying demand has more than offset roughly $400 million in additional fuel costs at each airline.

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