Asia-Pacific Airlines May Keep Fares High Despite Easing Jet Fuel Prices on Resilient Demand: S&P

Airlines in the Asia-Pacific region, including India, are likely to keep airfares elevated even as jet fuel prices decline. This strategy is driven by resilient passenger demand, which provides carriers the flexibility to recover increased operating costs, according to a report by S&P Global Ratings.

S&P Global Ratings noted that demand has proven to be more inelastic, meaning airlines are not inclined to reduce fares quickly. The report indicates that airlines in the region had already raised ticket prices to offset a sharp increase in fuel costs. Passenger yields, a key measure of revenue per passenger, saw an estimated year-on-year increase of 10-15% as of June 2026. Despite these higher fares, the impact on travel demand has been limited, with total passenger traffic in Asia-Pacific contracting only slightly by 1-2% year-on-year in May and June.

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Even as jet fuel prices ease, we believe airlines may not be inclined to reduce fares quickly since demand has proven to be more inelastic.

Load factors, reflecting the utilization of available seating capacity, have remained relatively stable across the region. S&P believes airlines will continue to maintain higher prices to compensate for elevated fuel costs, thereby supporting their financial buffers. This pricing strategy comes after jet fuel prices spiked above $240 per barrel by the end of March 2026, influenced by disruptions linked to the Middle East conflict. Although prices have eased in recent months, the geopolitical situation remains volatile, suggesting fuel costs could stay high for the remainder of the year.

The ratings agency anticipates a more significant recovery in airline margins starting from the fourth quarter, aided by seasonal peak demand. S&P projects Brent crude prices to decrease to $80 per barrel in 2027 from $110 per barrel in 2026. Low-cost carriers are expected to face greater pressure from expensive fuel, as it constitutes nearly 40% of their costs compared to about 33% for full-service airlines. Despite these near-term cost pressures, S&P remains optimistic about passenger demand in Asia-Pacific, citing the growth of middle classes and the economic expansion trajectories of China and India as key supporting factors.

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As such, we believe airlines may keep prices higher to make up for elevated fuel costs.