Jet fuel prices have dropped. Why are plane tickets still so expensive?

Jet fuel prices have retreated after soaring during the Iran war, but airline passengers shouldn’t expect cheaper tickets anytime soon as strong travel demand and Spirit Airlines‘ shutdown continue to keep fares elevated, according to air travel experts.

Lower fuel costs would normally ease pressure on airfare prices, but analysts say airlines have little incentive to cut fares while demand remains strong and industry capacity has shrunk following Spirit Airlines’ shutdown.

Air fares are also remaining elevated due to what economists call the “rockets and feathers” effect: Prices shoot up quickly when costs rise but drift down more slowly when those costs ease.

“Airfares have not yet begun to significantly come down because, just like the prices at your local gas station, anything tied to oil tends to go up fast but come down slowly,” Julian Kheel, founder of Points Path, told CBS News. 

Because jet fuel is the second-largest expense for airlines after labor, the recent price spikes prompted carriers to raise fares to offset higher costs.

“Companies like gas stations and airlines are seeing their costs going up, and they want to react quickly to make sure they are covered,” Kheel said. “When prices go down, they are not in as much of a rush. Any excess from higher ticket prices goes to better profits.”

The average price of a plane ticket booked through a travel agency in May rose 18% compared to the same period one year ago, according to data from Airlines Reporting Corporation (ARC), a provider of air travel data and analytics.

“Oil prices are part of the story behind the increase in fares that we’re seeing, but there is also continued geopolitical uncertainty, and travel demand remains strong,” ARC chief commercial officer Steve Solomon told CBS News. 

High ticket prices aren’t causing a decline in passenger trips, with May data showing that the number of passenger trips that month was unchanged compared to a year earlier.

No more Spirit

On the capacity front, Spirit Airlines’ exit eliminated a low-cost option that had provided fare competition to other airlines.

“As an ultra-low-cost carrier, it kept costs down on routes where it competed. That is gone, and nothing has replaced it,” Kheel of Points Path said. 

It takes time for remaining carriers to add capacity and meet travelers’ demand, Kheel added. 

“There is still robust demand for summer travel, and there is not enough time for airlines to add back more capacity for that demand, which means there is less supply than demand, and as a result, prices stay high,” he said.

Kheel also said travelers increasingly favor premium seating and services over the no-frills model Spirit built its business around.

“People since the pandemic are looking for premium experiences where airlines like Frontier and formerly Spirit had trouble competing, so that aspect of the airline market is not likely to return anytime soon,” Kheel said.