The Russian invasion of Ukraine has created uncertainty within the global oil market, pushing fuel prices up and airline stock prices down.
After a pandemic that badly damaged the travel industry, this threatens to undo the industry’s recent attempts at a comeback. Two years of intermittent lockdowns, heavy travel restrictions, and ever-changing COVID-19 entry requirements between countries made it impossible for the industry to function normally.
As pandemic-related dangers wane, every segment of the travel industry is working hard to get back to full functionality and attract customers. However, that won’t be easy with spiking fuel prices.
Airlines were already on the way to a return to normalcy because of heightened demand. Now, jet fuel costs have surpassed even the highest prices in 13 years.
After labor, fuel is airlines’ most significant expense, and its cost has risen 32% in just the past week. In all, prices have increased by over 50% since the start of 2022.
The NYSE Arca Airline Index keeps track of almost 20 airlines, and it shows a stock price drop of over 13% since Monday. United Airlines’ stocks alone have returned to the low prices of July 2020.
Though it might seem appealing for airlines to raise fares, it’s unclear whether prospective passengers would be willing to pay. Many individuals are still excited to fly, but their demand probably won’t make up for current fuel costs.
Helane Becker of Cowen & Co. suggested that it could take four months for passengers to face higher fares, but airlines will still struggle despite increased traffic.
Delta and United have kept quiet when it comes to public statements, but last month’s annual report from United stated that the airline had no plans to hedge fuel prices.
Higher fuel costs are affecting more than just the airline industry. Gas prices throughout Canada, Europe, and the U.S. have shot up, largely because of uncertainty caused by drastic sanctions against Russia.