Jet fuel prices drop, but why are airfares still so high?

Air travelers should not anticipate cheaper flights soon, even though jet fuel prices have decreased after soaring during the Iran war. Experts point to sustained strong travel demand and a shrinking airline capacity as key factors keeping airfares elevated.

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Airfares have not yet begun to significantly come down because, just like the prices at your local gas station, anything tied to oil tends to go up fast but come down slowly.

While lower fuel costs typically ease pressure on ticket prices, analysts suggest airlines have little incentive to reduce fares while demand remains robust and industry capacity has diminished. The shutdown of Spirit Airlines, a significant low-cost carrier, has particularly impacted fare competition. "As an ultra-low-cost carrier, it kept costs down on routes where it competed. That is gone, and nothing has replaced it," explained Julian Kheel, founder of Points Path.

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Companies like gas stations and airlines are seeing their costs going up, and they want to react quickly to make sure they are covered. When prices go down, they are not in as much of a rush. Any excess from higher ticket prices goes to better profits.

Economists also highlight the "rockets and feathers" effect, describing how prices increase rapidly when costs rise but descend much more slowly when those costs ease. Jet fuel is the second-largest expense for airlines after labor, and recent price spikes prompted carriers to raise fares. "When prices go down, they are not in as much of a rush. Any excess from higher ticket prices goes to better profits," Kheel noted.

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As an ultra-low-cost carrier, it kept costs down on routes where it competed. That is gone, and nothing has replaced it.

Data from Airlines Reporting Corporation (ARC) shows the average price of a plane ticket booked through a travel agency in May increased by 18% compared to the previous year. Despite high ticket prices, passenger trips remained unchanged in May compared to a year earlier, indicating strong demand. The limited supply relative to this demand, exacerbated by the loss of Spirit Airlines, continues to drive up prices.

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Oil prices are part of the story behind the increase in fares that we're seeing, but there is also continued geopolitical uncertainty, and travel demand remains strong.