- American Airlines CEO Doug Parker believes the sharp increase in crude oil prices over the past year is going to result in high prices for consumers.
- American, Delta, and United all reported a 25% to 26% increase in fuel expenses during the first quarter of 2018.
- Lower fuel costs over the past few years have helped US airlines become highly profitable, but also lowered ticket prices for passengers.
American Airlines CEO Doug Parker offered a warning to the flying public on Thursday – fuel costs are skyrocketing and that extra cost will be passed onto the consumer with more expensive ticket prices.
“Oil is our second largest expense,” Parker said in response to a question during the airline’s latest earnings call with analysts and media. “So when it increases, the cost of air travel increases.”
How fast has fuel prices gone up? Since last summer,crude oil prices have gone up more than 60% from around $US45 a barrel to roughly $US75.
“And the last 12% of that’s happened in the last two weeks,” Parker added.
During the first quarter of 2018, American’s fuel related expenses increased to nearly $US1.8 billion. That’s up 25.8% over the same period last year.
Delta and United also reported similar increases in their fuel expenses.
The cost of fuel has long been the arch nemesis of the airline industry. A sustained trend in fuel prices can have a major effect on the strategic decisions airlines make.
During the mid-2000s, when crude oil prices shot up to $US150 a barrel, airlines spent billions on new, more efficient planes in an attempt to save on fuel. Many marginally profitable routes were pushed into the red and subsequently cut because of fuel cost.
Between mid-2014 and early 2015, crude prices fell by more than 55% to roughly $US50 a barrel. In the years since, cheap fuel and cautious growth coupled with booming demand for air travel have ushered in the most profitable era in the history of US airlines. Lower crude prices have also translated to lower ticket prices. According to the US Department of Transportation, the average price of a plane ticket in the US fell by 15% from $US410 in 2014 to $US347 in 2017.
But a sustained increase in crude prices could put a damper on things for both the airline and the flying public.
“I would expect you would see higher fares to consumers over time,” the American Airlines CEO said.
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