Airfares have ben skyrocketing this year. Last month, fares were 26.7% higher than in May 2025. They were up about 3% from the pervious month and 10% compared to the beginning of the year.
And for fares booked one week prior to travel, Raymand James found a 34.1% year-over-year increase on June 8.
Fuel prices are largely to blame for this, but jet fuel prices have been going down with expectations of oil flowing through the Strait of Hormuz – and airfares haven’t been following.
Of course, airfares are still historically cheap. They’re about 17% above where they were 7 years ago – while inflation has risen more than 30% since then So while fares are up, they’re still below their real level from before hte pandemic.
Airline CEOs keep saying they’re going to keep fares up, even as the price of oil drops. That’s not actually how this works. If oil stays down, fares will fall. There will just be a lag of several months. Most people misunderstand how the price of jet fuel affects airfare prices, and that’s why this gets confusing.
- At the May 28 Bernstein Strategic Decisions Conference, Southwest Airlines CEO Bob Jordan said airlines were focused on sustainable margins and “we’ll certainly not attempt to give some of these fare increases back.” He predicted that even though jet fuel prices will eventually fall, airlines would retain much of the recent revenue gains.
- United Airlines CEO Scott Kirby, on the carrier’s first quarter earnings call, said that “The longer [conflict-driven high fuel prices] lasts, the higher the probability goes that the pricing increases hold,” estimating that even a quick snap back in oil prices might leave United keeping about 20% of the increase next year.
But high jet fuel isn’t the direct reason for high fares. It’s airlines cutting flights because of high jet fuel prices. Prices are set by supply and demand, not by cost of production. The cost of fuel influences how much supply airlines offer.
Before the run up in oil, U.S. domestic seats were expected to grow by 4.6%. Instead, they are only up 0.4% year-over-year. It’s basic supply and demand, and supply has been cut back.
- Higher fuel costs make flights more expensive. That means it’s more expensive to run an etra flight, to run a route that barely breaks even, or to run a bigger plane on a route in hopes of selling more seats.
- So airlines pulled back on the number of flights they were planning to operate. That meant fewer seats to satisfy passenger demand, which didn’t directly change. (Eventually high oil prices can ripple through an economy, cause a recession and depress demand, and even lower airfare in the short run.)
When jet fuel prices fall, each airline wants everyone else to restrain capacity and not add back flights. But it still makes sense for each airline individually to add flights. It’s something of a prisoner’s dilemma.
- When an airline adds a flight, they gain market share, conectivity, better schedules that passengers prefer, and better relevance to corporate travelers and frequent flyers.
- They bear just some of the reduction in fares that all airlines wind up experiencing.
- The industry as a whole if no one adds flights. But each individual airline that adds flights is better off than if they hadn’t.
CEOs can’t just simply keep prices high. If they could, they would have been doing it before the run up in oil. When the price of oil goes up, that doesn’t all of a sudden make customers more willing to pay. Wall Street keeps asking them if they can keep the high prices that have come about (from cutting flights due to high fuel) and they all want to be optimistic. So they’re leaning into:
- airlines will keep restraining capacity (if that doesn’t work out, it’s the other guy’s fault)
- low cost carriers aren’t doing well, and hey Spirit is gone (even though they were less than 2% of the market this summer)
- demand remains strong
That’s a forecast about supply and demand, not just that airlines are willing to charge higher prices. The only outlier in this discussion is United CEO Scott Kirby who claims that airlines historically made a mistake in not listening to revenue management wanting to raise prices, because marketing and government affairs doesn’t want to get criticized.
American Airlines Chief Commercial Officer Nat Pieper mocked this idea, saying that his government affairs chief Nate Gatten had “zero appetite … to dabble in revenue management.”
If you read Kirby saying that ‘actually, airlines are often badly run bureaucracies who make poor decisions’ then he isn’t wrong. But that doesn’t mean the correct choice for any airline is raising fares.
What does actually help airlines raise prices is public signaling, in earnings calls and at investor conferences like Bernstein.
- A fuel shock gives everyone a focal reason to move prices at the same time
- Public comments about “capacity discipline” and sustainable margins signal to competitors a (weak) commitment to keep fares up if they do.
One estimate is that legacy carriers held back capacity by 2% when all of them discussed “capacity discipline” around the same time. That’s not illegal and could just be a signal that everyone in this herd industry is thinking the same thing. But it also looks like signaling.
Ultimately, airlines make scheduling decisions several months in advance. In some cases, like new international routes, it can be a year or more out. But schedules largely firm up about 3 months ahead of time. So you wouldn’t expect immediate capacity increases of any significant size right when fuel prices fall. You expect those to lag by about three months (with larger increases, coming from net new aircraft orders, to have a lead time in years).
With spirit airlines out of the way its a blood bath for customers with price gouging
LAS to LAX 468 dollars one way in coach? in July
Hard pass
If you fly out @ 7 AM on sale for 200 lol
When did southwest become total pig whore sluts with outrageous pricing
wanna get away from them fast!
Of course airfares are up, and will stay elevated. Fuel prices have not fallen that much, and regardless, the administration has manufactured sustained inflation through its idiotic, jingoistic policies from tariffs to wars to trying to reclaim an America that never existed, and never will. Stagflation is the name of the game here for some time. Coupled with a looming debt default and basically, America is going to broke.
A lot of words to just say: Corporate greed.
Good description. So much for Mr. “Oil prices will fall like a rock”. Right up there with his “Better than Obamacare” plan. We’re still waiting.
World Cup!
World Cup!
World Cup!
As the World Cup winds down, air fares will start to drop. This is what supply and demand looks like.
Greed. Plain and simple.
“Corporate greed.”
The two most valuable airlines on earth make less than a 10% margin and fares are 30%-50% lower in real terms than in 1978 when the industry was deregulated.
Get a grip.
@rebel — Fine. United greed. Better?
Greedy POS bastards. And doubly so for SWA weasel Jordan. Solution to hurting them for fleecing you is simple. Refuse to fly them, but if you do, refuse to upgrade in any manner and drop their spinsired credit cards. We fliers CAN crush them, does anyone have the will?
Gary disseminates why economic principles and real world constraints will not result in immediate drop in airfare prices despite recent oil price declines.
Every leftist response? Corporate Greed!
Retards.
@Mantis — No, we see the game for what it is. Rocket-and-feather pricing is mostly padding corporate profits. Besides, since you’re based in Asia, haven’t supply shortages started affecting you directly? (Or, are you in the mainland, where they’ve actually invested in EVs far beyond anything we’ve done back home so far.)
Reno to Las Vegas on Southwest direct flight was 250 each way. Now it’s 400 each way. Tiny bit above. No thanks. I drive a truck and even with that MPG that 7 hour drive is way cheaper.
@BA — This is the way. If there’s price gouging, just say ‘no.’ Choose alternatives, stay home. Bring demand crashing down. (@Mantis, am I doing the ‘free market,’ now?)
To all the “greed advocates”, here’s what you are missing. Every company is greedy. Every company is greedy 365 days a year. Yet most do not raise prices as much as they would like to. In fact, they sometimes lower prices. If a company is lowering their prices, do you believe they are now less greedy? Has their BOD been infiltrated by a bunch of socialists? Of course not!
Most companies have little real control of their prices. They usually face stiff competition when they try to raise prices beyond what the market will bear. Competition is the best antidote for high prices. That will never change.
@David P — Yeah, nice attempt at a ‘perfectly competitive market,’ but the US airline industry isn’t. The difference right now isn’t a sudden spike in their desire for profit; it’s a spike in their ability to extract it because the “antidote” you mentioned is broken. Price competition requires excess capacity or a threat of market entry. Right now, airlines are dealing with aircraft delivery backlogs (everything Boeing, a220 P&W issues, etc.), slot bottlenecks at major hubs (haven’t you been following NYC area airport debates with @Tim Dunn on here?), and pilot shortages. So, when Spirit fails, the legacies don’t compete on price to win over those passengers; they just absorb the demand and raise fares because travelers have nowhere else to go. What we’re dealing with now (“Rocket-and-feather” pricing following the Iran shock) only works when competition is weak enough that carriers can collectively choose to lag on passing fuel savings down to consumers to pad margins. It’s a seller’s market. Consumers would need to collectively sit out and kill demand. Maybe they will. But, more likely, it’s just another proof that the existing US airline industry is an oligopoly where real competition is nearly gone. (Or, ignore all that, and call people ‘socialist!’)
@Gary Leff — So, related to this, let’s compare to Canada, where I just got this email from Porter this morning… Subject (Important: Reducing fuel surcharge); “In March, a temporary fuel surcharge of $40 was implemented for VIPorter reward flight redemptions to offset global aviation fuel prices that had doubled. We also said that our goal was to remove this surcharge when the price of fuel reaches levels seen at the beginning of this year. Today, we are taking a step in this direction. As the fuel market has started to normalize, we have reduced the fuel surcharge to $20 for new reward flight bookings made starting today. Fuel prices remain approximately 50% above last year. We are monitoring the situation and will make further adjustments as conditions change.” So, meanwhile, in Canada, where they have healthy competition and sensible regulations (and honorable companies), they are removing fuel surcharges.
Of course, if fares go up and demand doesn’t fall fares won’t decline. That’s business 101. To all the “they’re so greedy” I bet you if your company came to you and ask would you take a 20% pay cut so those savings could be passed off in lower prices to those poor, struggling consumes it would be a hard no.
@George Romey — Equating an individual worker’s salary to an oligopoly’s pricing power is a pretty wild false equivalency.
A single employee selling their labor in a competitive market has zero market power. A handful of legacy airlines controlling the vast majority of domestic seat capacity have immense market power.
No one is asking airlines to take a “pay cut” out of the goodness of their hearts. The point is about structural accountability. When input costs drop dramatically, like we’re seeing as the Iran oil shock subsides, a truly competitive market forces prices down because someone undercuts the field to grab market share.
Look at the Porter Airlines example I posted right above you; they actively reduced their fuel surcharge because they operate in a market where they actually have to compete for passengers.
The U.S. legacies don’t have to do that because they’ve successfully insulated themselves behind capacity bottlenecks. It’s not “Business 101,” it’s a broken market.
@1990 – you make a lot of valid points. However, I think it leads you to the wrong conclusion. You mentioned aircraft delivery backlogs, slot bottlenecks, pilot shortages, etc., etc. all are valid reasons why airfares are being pushed upwards. This isn’t greed, it’s indicative of an overly regulated market. Again, I don’t dispute that the greed is there. It’s Always there. I just dispute that greed had much to do with price inflation.
Costs don’t determine prices. Prices rather, determine costs.
To blame costs on prices is to have things in reverse and mistake cause for effect. Airlines are able to pay these costs because of consumer demand for travel and the prices they are willing to pay for it. Costs arise from consumers’ subjective willingness to pay for goods and services and this subjective consumer value and the prices they are willing to pay are are the bases for costs – not the reverse as our intuition suggests and serves as a fallacy on which much political demagoguery and related central planning fantasies are based
@David P — So, Boeing’s backlog is ‘over-regulation’? No, it’s a catastrophic failure of corporate governance and manufacturing quality control after a decade of prioritizing stock buybacks over engineering. I’d prefer the FAA properly certify door plugs so they don’t blow off at 16,000 feet. Also, slots at major hubs aren’t ‘red tape,’ either; they’re physical realities at airports like LGA, JFK, etc., unless you prefer gridlock on runways.
The reality is that the barriers to entry are so high that they have allowed a tight oligopoly to form, which shields carriers from true price competition. Gary’s written on this regulatory capture problem before (like the DOT’s waivers that keep competitors out of New York while protecting incumbent capacity cuts); I’m just extending it to the further market consolidation we’re living through. You can’t just blame “the government” for prices when the government is actively protecting the legacies’ fortress hubs from the so-called ‘free’ market.
@Mak — When the Iran crisis hit and jet fuel doubled, airlines didn’t raise prices because of a sudden spike in “subjective consumer willingness to pay.” They raised prices because their single largest variable input cost surged, shifting the industry-wide supply curve upward.
In a healthy, competitive market, when that fuel cost drops, a hungry competitor undercuts the field to grab market share, forcing prices down. In our broken domestic market, because the legacies are completely insulated by the physical and fleet bottlenecks that I mentioned above, they can choose to ignore the cost decrease and hold prices high. When travel isn’t purely discretionary, like for business or family emergencies, “subjective value” is just a euphemism for a captive audience with no alternatives.
@1990
Holy cow batman, you do understand economics, although calling supply and demand “greed” is kind of pointless, esp. since you have all the rest of this down. Shared oligopoly is a problem and the G has had a role in creating it since non competitive markets are easier to regulate and extract rents from.
@jack the ladd — (Yeah, sometimes, brevity and a few inside jokes are more fun.) These days, there be an incestuous relationship between the regulators and the regulated. A highly consolidated market with just four dominant players is easier for the government to manage, monitor, and ‘extract rents’ from than a chaotic, highly fragmented truly ‘free’ market. The legacies get protected fortress hubs, and the bureaucrats get an predictable, orderly sandbox. However, the casualty in that cozy arrangement is we, the consumers, who get to watch fuel prices plunge, while an economy ticket from NYC to Florida rises from $100/person/way to $200+ on-average.
Because of Spirit, obviously
@BBK — You’re probably being sarcastic, but Gary was right to include Spirit’s demise as part of this. Because capacity is so constrained, the legacies didn’t have to backfill those routes or compete on price. They just absorbed the spillover demand. Now they can charge $468 one-way for coach on a route Spirit used to run for $68. Spirit’s collapse didn’t just hurt their own; it removed the competitive price floor for the industry. (This was what the former DOJ did prove in court, that when NK exited a market, fares shot up by 30% on average… but, I get it, AutoPen-bad, so…)
Take Amtrak in the NE–American coal powered electricity. But Amtrak doesn’t really compete against airlines. I think that Amtrak competes against busses.
Given the sad demise of Spirit Airlines, a Nineth Freedom flight would be a nice gesture of actual de-regulation (not the “re-regulation” deregulation of 1978.) But this gesture never would come true.
@1990 — When the Iran crisis hit and jet fuel doubled, airlines didn’t raise prices because of a sudden spike in “subjective consumer willingness to pay.” They raised prices because their single largest variable input cost surged, shifting the industry-wide supply curve upward.
No. When the Iran crisis hit and jet fuel doubled, airlines raised the price because they could, and consumer willingness to pay allowed airlines to bid for the now dearer jet fuel – had the consumer willingness not been there they would not have been able to bid for the fuel at it’s new wartime level. In the classic microeconomic example, if a baker sells a $5 cake that includes $1 worth of eggs, and the price of eggs suddenly goes to $100, can he simply raise his price to $101? The answer of course is no, because demand for eggs won’t follow the costs and the baker won’t be able to bid for the eggs (the price of which will theoretically fall with the baker out of the market).
@Mak — Talk about ‘Let them eat cake…’ So, you think an isolated, single-merchant luxury item (cake) is the same as an industry-wide global commodity shock (jet fuel) affecting a necessity/utility market? Besides, you just described an insane 100x price increase. Here, fuel prices nearly doubled for a little while, and strategic reserves are being depleted to artificially lower costs. It’s a deeply flawed analogy. Come back when average airfare goes from $400/ticket to $40,000.
@Coolio — (From you earlier comment on the other post) I don’t need your permission, but would you really want me to leave @Mak hangin’ here without a reply? That wouldn’t be as fun…
@1990 Do you really think that there is a market for $40,000 air tickets if the price of fuel goes up 100x? Or is it more reasonable to assume that $40,000 tickets will lead to a massive reduction in demand as consumers find alternative sources of leisure and ways to take work meetings, with a resulting lack of demand for all of the inputs to go into the aviation product? It should be obvious from your own example there is no 1:1 relationship between cost and price, and if we appreciate the complexity of the pricing system with all of its variables, that the price signals are moving in the opposite direction that it initially seems? We like to think that we can micromanage consumer prices by controlling costs – this is a major theme in US politics at the moment – but it’s completely based upon fallacy and simplistic thinking.
@Mak — Oof, speaking of ‘fallacies,’ it’s good the World Cup is ongoing, because you’re attempting to move the goalposts, and doubling-down on your earlier strawman. Then, you really show your cards and begin the ‘communist!’ tropes. Classic. (Did @Mantis train you?)
No one said people would buy $40,000 Economy tickets (unless it’s La Premiere and someone else is paying). Continuing to use an absurd 100x example to analyze a real-world fuel doubling is a farce. (Next, I fully expect you to triple-down. Please, more clicks for Gary. Yay!)
When fuel costs double, airlines cut flights to protect margins. In a true free market, new budget airlines would swoop in and undercut them. But starting or growing an airline right now is nearly impossible. Between Boeing’s delivery freezes, Pratt & Whitney engine groundings, pilot shortages, and a lack of gate space at major hubs, new competition is locked out.
The real issue is that we have a consolidated oligopoly in the US where a few dominant players are insulated from competition and mostly can get away with this type of price-gouging. Everyday consumers impacted by that have every reason to call it out. Add me to that list, along with @dwondermeant, @Brent, @BA, @Dave, @lavanderialarry, @drrichard, and @BigTee. (Don’t worry, @David P, @rebel, and @George Romey are happy to join you in shilling for multi-billion dollar corporations over everyday flyers.)