Planning a Trip Is Pricey
Airline prices have spiked 25% in the past year, rising 18.6% in April alone. This 12-month jump is already the biggest since 1989 — and there doesn’t seem to be much relief on the horizon. Executives in the aviation industry warn that there could be even more pain in the months ahead.
It’s also a less-than-ideal time for travelers to face elevated costs, as many are in the process of making plans for the rapidly approaching, and always busy, holiday travel season.
A deeper look can help explain what’s going on with flight prices.
A Trio of Factors
Executives within the airline industry stated there was a massive decline in oil refining capacity during the COVID-19 pandemic. US refining capacity peaked in 2019, and has been falling ever since, including a 5.4% drop in 2022. Reduced capacity is mainly due to oil refineries being closed down or converted into renewable energy hubs. This is the first reason that flight prices are climbing.
The second reason has to do with Russia’s announcement concerning military mobilization. This could result in an escalation of the Ukraine war, which would put additional supply-side pressure on oil prices. As reserves shrink, and it becomes more difficult to send oil around the world, prices could be expected to rise.
Running on Fumes
Based on their second quarter earnings reports, most airlines remain on life alert. Spirit (SAVE) and Jetblue (JBLU) both reported quarterly losses, while United (UAL) and American (AAL) posted razor-thin profit margins of less than 4%.
Many working in the industry argue airlines are not increasing fares in order to make more money for themselves. Instead, they’re raising their prices in a bid to cover their own rising costs.
In today’s globalized world, different factors unfolding around the planet have the power to interrupt your holiday travel plans. For consumers, the best course of action may be to start booking upcoming flights as early as possible.
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