United Airlines Warns of Potential Ticket Price Increases Due to Rising Oil Costs

The chief executive of United Airlines has indicated that ticket prices might increase by up to 20% if oil prices keep climbing as a result of the ongoing conflict in Iran.

Scott Kirby shared his insights during an interview with Bloomberg TV, expressing concerns about consumer reactions and a potential decline in travel demand if fares were to rise.

“As ticket prices rise, we’re likely to see a drop in demand. Fewer people will choose to fly,” Kirby explained.

He noted that when airfare increases due to rising oil prices, it could discourage some individuals from flying.

Kirby mentioned that the airline is already making adjustments to its network to better handle the increasing costs.

“It just doesn’t make sense to operate flights that aren’t profitable,” he remarked, discussing the reduction of marginal routes that struggle to cover escalating fuel expenses.

He elaborated on the substantial pressure facing airlines, warning that sustained high oil prices would likely lead to significant fare hikes.

“To keep up with that cost, we might need to raise prices by 20%,” he stated.

Kirby also conveyed that the airline industry is anticipating high oil prices to persist into the next year, predicting that prices could remain above $100 a barrel until 2027.

Previously, United, the largest airline globally by capacity, cautioned about an extended oil price shock, even suggesting that in the worst-case scenario, prices could spike to $175 a barrel.

Due to rising fuel expenses, United has already slashed around 5% of its flights, eliminated unprofitable routes, and reduced off-peak service.

While Kirby reassured that the scenario isn’t dire like the situation during the coronavirus pandemic, he did acknowledge it would pose a “stressful event for the industry.”

Kirby asserted that the airline has strengthened its finances to avoid future furloughs and emphasized the commitment to protect employees from such predicaments again.

A spokesperson for United declined to provide further comments. Meanwhile, a representative from Southwest Airlines mentioned that discussions surrounding fuel costs and capacities are anticipated during their upcoming financial results report in late April.

Other airlines, including American Airlines and Delta Air Lines, were also approached for remarks regarding the situation.

An expert who spoke to the publication warned that persistent high oil prices could deter people from traveling.

“Airlines are quite sensitive to fluctuations in oil prices, and they typically pass those costs onto consumers,” Dan Babb, a former airline pilot and visiting professor, stated during the interview.

“People might reconsider their travel plans,” he added. “A family that considers a vacation might opt for a closer destination if prices rise significantly.”

He noted that business travelers likely wouldn’t feel the pinch as much since their companies usually cover costs, but for leisure travelers, it’s a different story.

Babb cautioned that should oil prices stay high, the consequences could be far-reaching.

“It’s shaping up to be a perfect storm… a real disaster for everyone involved, including the airlines,” he said.

He predicted that airlines might pull back on services, particularly in markets that aren’t generating enough profit.

“The number of flights is likely to decrease,” Babb said. “Airlines will have to give careful consideration to which routes are yielding the most profit.”

This downturn could heavily impact many, especially regional airports, which may suffer the most from these changes.

In recent days, oil prices have surged as traders express doubts about a quick resolution to Middle Eastern tensions.

The price of Brent crude, the global benchmark, rose above $100 a barrel this week, gaining more than 4% to around $104 following a period of volatility.

US crude oil futures also saw an increase, hovering around $90 per barrel.

This uptick follows a week that saw a significant sell-off, with Brent dropping roughly 11% earlier due to optimism about a resolution.

However, such hopes receded as conflicting narratives from Washington and Iran suggested there might not be a quick fix.

Analysts have indicated ongoing concerns about potential disruptions to supply, especially through the strategic Strait of Hormuz—a crucial route for global oil transport heavily impacted by current conflicts.

Around 20% of the world’s offshore oil typically transits through this strait, and any prolonged disruption could lead to further price hikes and instability, despite ongoing diplomatic efforts.

Additionally, energy analysts warn that continued attacks on infrastructure might limit production and transportation. This raises the worry that oil prices could remain high for an extended duration beyond what was expected earlier this year.