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Why airfare is rising as airline profits get squeezed
CNBC • • general
Key Points:
- Volatile fuel prices, driven by the Iran war and Strait of Hormuz disruptions, have pushed jet fuel costs to multi-year highs, significantly impacting airlines' biggest expense after labor.
- Despite higher fares and added fees to offset fuel costs, travel demand remains resilient, with only a slight decline in passenger numbers compared to last year, and strong booking activity for key holiday periods.
- Airlines are enhancing premium cabin offerings to capitalize on demand for more comfortable seating, sometimes reducing standard coach capacity to do so.
- While third-quarter airline revenues are expected to show double-digit growth, profit forecasts have been downgraded due to sustained high fuel prices, with some carriers predicting losses or reduced earnings for 2026.
- Airlines are cautious about capacity growth amid fuel cost volatility, trimming unprofitable routes and responding to market changes like Spirit Airlines' collapse, which has increased pricing power for remaining carriers.
