Key facts
- Oil prices have fallen to nearly $70 a barrel from over $100 following a preliminary US-Iran agreement.
- Airlines are expected to maintain high ticket and ancillary fees due to tight seat supply and strong demand.
- US airline stocks have surged as investors anticipate improved profit margins.
- Domestic airfares are up 8% and international airfares up 18% since the conflict began.
- Checked bag fees have increased, with most major carriers charging $40-$50 per bag each way.
Flyers hoping for cheaper flights this summer may be disappointed, as airlines are unlikely to lower ticket prices or ancillary fees despite a preliminary agreement between the US and Iran that has led to a significant drop in oil prices. Oil, the second-largest expense for airlines after labor, has fallen to around $70 a barrel from highs above $100. Aviation analysts suggest that a combination of tight seat supply and resilient demand gives airlines little incentive to reduce fares or fees. Richard Aboulafia, aviation analyst at AeroDynamic Advisory, noted that "Inflation is a great excuse to get more pricing power." US airline stocks have rallied as investors anticipate that lower fuel costs coupled with sustained high fares will boost profitability. Data shows average domestic airfares are up about 8% and international airfares are up about 18% since the conflict began. Airlines have also raised checked bag fees, now typically between $40 and $50 per bag each way. CEOs from major carriers like Delta, United, and Southwest have indicated that fares are likely to remain elevated due to strong demand, limited capacity, and durable pricing power. Southwest CEO Bob Jordan stated they "will certainly not attempt to give some of these fare increases back." Raymond James analyst Savanthi Syth explained that for prices to fall, supply must increase or demand must soften, which she deems unlikely. She added that capacity for the summer is largely finalized, with potential for adding more only in the fourth quarter at the earliest. The collapse of Spirit Airlines in May has further reduced the availability of cheaper tickets, contributing to upward pressure on fares. Checked bag fees are also expected to remain high, with US airlines generating approximately $5.5 billion from these fees in 2025. Analysts believe changes in bag fees are "stickier" and less dependent on the demand environment. United CEO Scott Kirby expressed skepticism about the longevity of any deal that might reopen the Strait of Hormuz. Airlines may also be hesitant to add capacity after recent disruptions, including inflation and government shutdowns.