Key facts
- Oil prices have fallen below $80 a barrel following a preliminary agreement to end the Iran war.
- Aviation analysts do not expect airfares to decrease despite lower oil prices.
- Airlines have raised fares and ancillary fees due to higher fuel costs and tight capacity.
- Domestic airfares have risen about 8% and international fares about 18% since the conflict began.
- Checked bag fees have increased, with most major carriers charging $40-$50 per bag each way.
Despite a preliminary agreement to end the war between the US and Iran, which has caused oil prices to drop below $80 a barrel, analysts do not anticipate a decrease in airfares or other consumer costs. Airlines have implemented strategies such as cutting unprofitable routes and increasing ticket prices and ancillary fees to counteract higher fuel expenses. Aviation analysts suggest that factors like tight seat supply and sustained demand provide airlines with little incentive to reduce prices. Richard Aboulafia, an aviation analyst, noted that inflation has provided airlines with greater pricing power. Data indicates that average domestic airfares have risen by approximately 8% since the conflict began, while average international airfares have increased by about 18%. Fares from the US to cities like Amsterdam and London have seen roundtrip increases exceeding $200. Additionally, US airlines have raised checked bag fees, with most major carriers now charging between $40 and $50 per bag each way. Airline executives, including those from Delta, United, and Southwest, have indicated that fares are likely to remain elevated due to resilient demand, limited capacity, and strong pricing power. Southwest CEO Bob Jordan stated that airlines will not attempt to reduce fare increases. Raymond James analyst Savanthi Sath explained that a decrease in ticket prices would require an increase in supply or a softening of demand, neither of which is expected. She also noted that oil prices are still up 50% year-over-year and potential oil shocks may persist. Capacity for flights through August is largely finalized, meaning any significant addition of capacity would likely not occur until the fourth quarter. The collapse of Spirit Airlines in May and the resulting loss of its lower-cost tickets also contribute to upward pressure on fares, according to NerdWallet travel analyst Sally French. Analysts also agree that checked bag fees are unlikely to decrease, especially given the substantial revenue airlines generate from them.