Airline ticket prices may stay high as carriers bank fuel relief from Iran deal

Airlines could save billions of dollars in fuel expenses after an interim peace agreement between the United States and Iran pushed oil prices lower. However, travelers are unlikely to benefit from lower ticket prices in the near term, as limited airline capacity may allow carriers to maintain fares at levels significantly higher than before the conflict.

The United States provides a clear example of this trend. While fuel costs have declined, airfare increases have not fully reflected the earlier surge in fuel prices. At the same time, domestic flight capacity remains constrained, giving airlines an opportunity to improve profitability rather than reduce fares.

US jet fuel spot prices fell to $2.85 per gallon on June 17 from a peak of $4.88 per gallon in early April. If prices remain at current levels, the US airline industry could save more than $40 billion annually in fuel costs, according to Reuters estimates based on industry fuel consumption.

Despite higher fuel expenses earlier this year, airlines only partially recovered those costs through fare increases, baggage fees, and schedule adjustments. Industry figures show that jet fuel prices rose more than three times faster than airfares between January and May.

According to Deutsche Bank, US airlines are expected to recover only about 60% of the additional fuel costs they incurred, generating approximately $14.4 billion in extra revenue compared with $24.1 billion in added fuel expenses.

Several major carriers reported differing levels of cost recovery. Alaska Air said it recovered roughly one-third of its increased fuel costs, while Delta Air Lines, United Airlines, and American Airlines estimated recovery rates between 40% and 50% during the second quarter. JetBlue Airways and Frontier Group expect to recover less than half of their additional fuel expenses.

United Airlines CEO Scott Kirby stated that the company is moving closer to fully recovering the recent fuel-cost increase through pricing strategies and expects to achieve complete recovery by the end of the year.

Data from Raymond James showed that average domestic fares booked one week before departure were 34.1% higher than a year earlier as of June 8.

Industry analysts say the main issue now is whether airlines can maintain these higher ticket prices as fuel costs decline. Conor Cunningham of Melius Research noted that sustaining current pricing levels will be crucial, while lower gasoline prices may reduce consumer concerns about expensive airfare.

The impact of lower fuel prices is expected to vary across international markets. Analysts suggest that reductions in crude oil prices take time to affect jet fuel costs, and airlines are likely to keep fares stable or even raise them further in markets where demand remains strong.

In Europe, the effects may differ by route type. Long-haul ticket prices could decrease because airlines were more successful in passing fuel-cost increases on to passengers. However, short-haul fares may remain firm if the peace agreement boosts travel demand and booking activity.

In Asia, airlines face mixed prospects. HSBC analysts noted that China’s three largest carriers continue to struggle with weak pricing power and lower aircraft utilization. In contrast, Hong Kong-based Cathay Pacific appears better positioned, as strong demand for premium travel, higher ticket prices, and solid cargo revenues could help offset fuel-related costs.