CNN's gloomy forecasts: Airline ticket prices will remain high even when fuel becomes cheaper

(Patria) - The rise in jet fuel prices, spurred by the war in Iran, will lead to significantly more expensive airline tickets.

However, passengers should not expect prices to drop even if fuel becomes cheaper. Namely, high ticket prices are as much a consequence of strong travel demand as they are of fuel costs.

Despite the price increases, passengers are booking tickets in record numbers with many airlines, so as long as demand does not wane, prices will likely remain high regardless of fuel price movements, writes CNN, as reported by Index.

- The longer passengers pay these prices and the more carriers get used to such revenue inflow, the more likely it is that prices will stick - said United CEO Scott Kirby on Wednesday during the announcement of business results.

Passengers of that company now pay on average 20 percent more for each mile flown compared to last year.

Asked about maintaining higher ticket prices even after fuel prices normalize, American Airlines CEO Robert Isom said customers have already shown a willingness to pay more for services like extra legroom or seats closer to the front of the plane.

- I am optimistic about what that means for our business - Isom told analysts on Thursday.

He added that summer bookings remain strong, even after the company raised ticket prices.

- I think we are witnessing the realization that travel is still good value for money - Isom stated.

The price of jet fuel, which has nearly doubled since the beginning of the year, is the main cause of the general increase in ticket prices. Fuel is, right after labor costs, the second largest item in airline operations.

The four largest U.S. carriers - United, American, Delta and Southwest - spent an average of $100 million per day on fuel last year, at a time of relatively low oil and fuel prices.

Today they are paying billions more. Delta said that in this quarter alone, they are facing a $2 billion increase in fuel costs.

Airlines are passing some of those costs on to consumers. Recent results show they are already charging passengers 20 percent more per mile flown than a year ago, and prices are expected to continue rising.

Southwest Airlines Chief Operating Officer Andrew Watterson told investors on Thursday that there have already been five waves of price increases across the industry since the start of the year, and more are expected.

All airlines claim they have only offset part of their increased costs.

However, ticket prices are not based on the operational costs of a flight, explains Zach Griff, author of the aviation newsletter From the Tray Table. The price is primarily determined by demand - for a specific route, time of day or week, and the level of competition.

For example, midweek or night flights are usually cheaper than peak-time flights on the same route, such as Friday afternoon.

Passengers also often pay significantly less per mile on popular long-haul routes between major cities, like New York and Los Angeles, than on shorter routes with less demand.

Airlines are canceling some of the less profitable flights, which have become unviable due to higher fuel costs.

United, for example, has reduced its previously planned flight schedule through September by about five percent. Removing these cheaper tickets also raises the average ticket price.

Given that passengers are still buying tickets, airlines know they can maintain higher prices on remaining flights.

- Ticket prices will ultimately be set in line with market conditions - says Watterson from Southwest.

There is also the possibility that Spirit Airlines, a leader in ultra-low-cost fares, could collapse under the burden of higher fuel costs. The low-cost carrier, which has filed for bankruptcy twice in the last two years, warned in March that it might cease operations.

The Trump administration has said it is considering the possibility of bailing out or even buying the company to keep it afloat.

Even if Spirit survives, it will be significantly smaller. Other low-cost carriers are also struggling to survive.

- If you remove low-cost competition from the equation, then yes, I think United and similar carriers could get away with higher prices that would stick for a very long time - said Griff.

Regardless of what investors and analysts think about the airlines' intention to keep prices high even after fuel prices fall, the idea has sparked a sharp public reaction.

Representative Ritchie Torres, a Democrat from New York, sent a letter to United's Kirby following his statements.

"United is openly planning to retain a significant portion of fuel savings instead of passing them on to passengers. Ordinary Americans, many of whom already cannot afford to fly, deserve better than such a level of corporate greed," Torres wrote.

United declined to comment on his letter.