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Soaring and unpredictable fuel costs, together with steady traveler demand, are keeping ticket prices elevated and squeezing airline profits. Carriers face a squeeze as jet fuel and other refined products rise faster than crude oil amid supply disruptions linked to the Iran war.
Fuel volatility and ticket pricing
The conflict involving Iran that began in late February has pushed diesel, gasoline and jet fuel to levels not seen in years, in some cases hitting record territory. Disruptions around the Strait of Hormuz through much of the year amplified supply concerns and lifted refined-product prices above crude.
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Airlines have responded by passing costs to passengers. Carriers are raising fares, reinstating or boosting fuel surcharges and increasing baggage fees to shore up revenue. Executives say they are planning for prolonged tightness, not a quick return to cheaper fuel.
Qantas Chief Executive Vanessa Hudson told CNBC she cannot base long-term plans on hopes of a reopening in key shipping lanes. The Australian carrier is still moving ahead with ultra-long-haul routes, including planned London–Sydney and New York–Sydney services in the next two years.
Who is still flying — and what they’re paying
Overall travel demand remains robust even as passenger volumes are slightly below last year. U.S. airport security screenings were down about 1% through Sept. 20 versus the same period in 2025, according to a Bernstein note published Sept. 23.
Meanwhile, rising fares have been evident in inflation data and fare trackers. The latest U.S. inflation report showed airfares climbed 23.4% in August from a year earlier. Hopper reported on Sept. 24 that round-trip domestic fares were averaging $402 for Thanksgiving—roughly a 31% increase year-over-year—while Christmas round trips averaged $452, up about 23%.
These price jumps have not entirely deterred travelers. Hopper economist Hayley Berg says many consumers treat holiday flights as essential and are booking those trips earlier than usual. That focus on key dates can leave room for lower-priced options in off-peak periods.
Revenue gains, but a dimmer profit picture
Airlines expect strong top-line growth for the third quarter as passengers accept higher prices. American Airlines CEO Robert Isom told investors he has rarely seen such year-over-year revenue improvement outside of major recoveries.
Despite revenue gains, analysts have trimmed profit forecasts after another summer rise in jet fuel. In July, American warned it could post an adjusted third-quarter loss of between $0.10 and $0.70 per share and lowered its profit outlook for 2026.
Earnings season will give investors a clearer view. Delta Air Lines, the U.S. industry’s most profitable carrier that also owns a refinery, is due to report third-quarter results and update its guidance for the remainder of the year.
Capacity decisions and market balance
How airlines manage capacity will matter for fares going forward. Many carriers are scaling back marginal routes to avoid unprofitable flying. The May collapse of Spirit Airlines removed roughly 1% to 2% of U.S. seat capacity, Barclays estimates, helping both low-cost and full-service carriers keep fares firmer.
Analysts say routing and capacity plans will determine whether elevated prices persist. Raymond James airline analyst Savanthi Syth warns that if jet fuel stays in the roughly $4.00 to $4.50 per gallon range, carriers are likely to cut flights rather than broadly raise fares—an action that can still push average ticket prices up by reducing seat supply.
Barclays airline analyst Brandon Oglenski noted in a Sept. 28 research note that investors will watch scheduled domestic capacity growth at large carriers, pointing out current plans that show American and United increasing seats about 10% and 9%, respectively. With refining margins and energy costs remaining elevated, Oglenski expects many airlines to temper their capacity ambitions for the near term.
