Airlines Reeling from the Pandemic Hammered Yet Again by Oil Prices

Oil Prices Into the Stratosphere

Since Russia’s invasion of Ukraine, the price of oil has skyrocketed and now easily exceeds $100 per barrel — the highest level in decades. Because fuel is the airline industry’s second-biggest expense after labor, some analysts are making downward revisions to profit estimates.

This comes on the heels of two rough years, with airlines struggling to get traction. Lingering concerns over COVID-19 and the potential for emerging variants may continue to sap demand. Analysts argue travel will also be muted by shrinking pocketbooks as inflation takes its bite out of consumer spending power.

Airline Stock Prices Tumble

Market observers say the conflict in Ukraine is likely to diminish consumer enthusiasm for European travel. Airlines that rely on transatlantic flights, such as United Airlines (UAL), have been hit particularly hard.

Labor shortages are exacerbating pressure on bottom lines. Stock prices of United Airlines, Delta Air Lines (DAL) and American Airlines (AAL) have fallen significantly in recent trading. All three are below 2019 peaks.

The Case for Optimism

In the near term, consumers may not see fares rise due to the airline industry’s intense competition. Amid inflation, wariness over geopolitical tensions, and COVID-19 potentially dampening enthusiasm for travel, the airlines may be hard pressed to raise prices either way.

There is reason for optimism in the long term. Some airlines used the last two years to streamline and cut expenses. Pent-up demand could entice people to venture out, especially during the summer. The luxury travel segment also offers promise as these consumers are less likely to reduce discretionary spending in response to rising costs. Oil prices are just the latest challenge airlines must confront in their post-pandemic flight plan.

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