CHICAGO — U.S. airfares are likely to remain elevated even if oil prices ease, as strong travel demand and reduced pricing pressure from low-cost carriers give airlines room to preserve fare increases made during this year's fuel shock.
Delta Air Lines said in July that higher fares were proving sustainable as fuel costs moderated from their peaks. The carrier said its passenger revenue and pricing remained strong, offering an early indication that cheaper fuel alone may not translate into lower ticket prices.
U.S. airline fares were already 26.7% higher in May than a year earlier, according to the U.S. Bureau of Labor Statistics. They rose 2.7% in May from April on a seasonally adjusted basis. The June data showed the seasonally adjusted airline-fare index edging higher again, while the July CPI report is due on Aug. 12.
The elevated fares followed a sharp increase in airline fuel costs after the conflict involving the United States and Iran disrupted energy markets. Airlines raised fares to offset part of the higher costs, while some carriers reduced capacity.
Frontier Airlines said in late July that its second-quarter fares had increased more than 50% from a year earlier, helping offset a nearly doubled fuel bill. The carrier attributed stronger pricing to higher demand and reduced competition following Spirit Airlines' exit, as well as broader capacity reductions across the U.S. industry.
Oil markets remain volatile. Brent crude was around $87.81 a barrel and U.S. West Texas Intermediate around $82.20 on Aug. 11, after prices rose more than 5% the previous session as prospects for a U.S.-Iran agreement and reopening of the Strait of Hormuz weakened.
Fuel remains one of airlines' largest operating expenses, but fare-setting also reflects demand, available capacity and competitive conditions. Delta's June-quarter results showed revenue rising strongly despite higher fuel expenses, while the carrier maintained its forecast for third-quarter revenue growth in the mid-teens.
The BLS said its airline-fare measure includes applicable taxes and selected airport, security and baggage charges, while using fixed booking specifications to track comparable fares over time.
The next national measure of U.S. airline fares will come with the July CPI release scheduled for Aug. 12, providing the latest official gauge of whether elevated ticket prices are continuing into the second half of the year.
