Key Takeaways:
- U.S. airfare rose 26.5% in June from a year earlier
- United and American each expect about $6 billion more in fuel costs
- Big four carriers now control 82.1% of domestic seats, up from 80.7%
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Airfare Stays 26% Higher as Airlines Keep Pricing Power
Airlines are betting that record demand will absorb the steepest fare increases in years, even as fuel costs ease from April's four-year highs.
U.S. airfare rose 26.5 percent in June from a year earlier, and carriers from United to Frontier say pricing power will hold through 2026 even if jet fuel keeps falling from April's four-year highs.
"Despite high fuel and high prices, we're seeing really strong demand," Bob Jordan, chief executive of Southwest Airlines, told CNBC in late July.
Southwest's average one-way fare reached $225.61 in the second quarter, up from $186.65 a year earlier. United expects to pay about $6 billion more for fuel this year than it projected at the start of 2026, while American forecast a $6 billion jump in fuel costs, each more than 50 percent above 2025. Both carriers said demand remains strong as they pass costs to customers through higher fares.
The stakes are high for the four biggest U.S. carriers — American, Delta, United and Southwest — which now control 82.1 percent of domestic seats, up from 80.7 percent last year and 79.7 percent in 2022, according to Cirium data. American projects a third-quarter loss of 70 cents to 10 cents a share even as Delta guides to $2.00-$2.50 and United to $2.50-$3.50, leaving the weakest of the group little buffer if bookings soften after the summer rush.
The fuel shock traces to the U.S. and Israel's strikes on Iran that began Feb. 28, a conflict that has choked a main shipping channel for months. Jet fuel prices have eased from $4.78 a gallon in April to about $3.60 on the U.S. Gulf Coast, but remain roughly 50 percent above pre-conflict levels, S&P Global Energy Platts data show. The last comparable spike, after the 2022 invasion of Ukraine, pushed U.S. airfare up 37 percent within a year before demand cracked.
Airlines have responded by pruning schedules, which cuts the number of flights on a route and lifts fares. United said fuel costs rose $575 million from the start of July to mid-month, knocking $1.12 off third-quarter adjusted earnings. Southwest, fearing a supply crunch on the import-reliant West Coast, shipped more than 12 million gallons of jet fuel through the Panama Canal from Houston to Los Angeles in May — the first time it had moved Texas fuel to another U.S. destination by sea.
The pricing power is most visible among discounters. Frontier, now the largest U.S. low-cost carrier after Spirit Airlines collapsed in May, lifted average fare revenue to $63.04 in the second quarter from $40.94 a year earlier, and plans to grow capacity as much as 18 percent this quarter with unit revenue up 20 percent. JetBlue forecast unit revenue growth of as much as 16.5 percent in the current quarter. Frontier, JetBlue and Allegiant are all introducing first-class seats in coming months to capture travelers willing to pay up for more space.
The test comes after Labor Day, when the summer rush fades. Airport checkpoint screenings are down 0.5 percent from a year earlier through July 24, and down 2.6 percent in the four weeks ending that day, Bernstein analyst David Vernon said in a note. Carriers counter that international travelers are booking more in the fall and other off-peak periods to avoid crowds, heat and high prices. If bookings hold, airlines keep the fare gains; if they crack, the carriers with the thinnest margins — American first — will be forced to discount into the fourth quarter.
This article is for informational purposes only and does not constitute investment advice.
