Strong demand, fewer budget airlines keep airfares elevated

Plane tickets continue to cost significantly more than they did a year ago, even as one of the airline industry’s biggest expenses has started to decline.

New data from Airlines Reporting Corporation shows the average airfare purchased through travel agencies in May was 18% higher than during the same month last year. Analysts say several factors are keeping prices elevated, including strong demand for travel, reduced competition after Spirit Airlines shut down and airlines’ reluctance to lower fares once they’ve increased them.

Julian Kheel, founder of travel rewards platform Points Path, said airfare often follows the same pricing pattern consumers see at the gas pump. When fuel becomes more expensive, airlines quickly pass those costs on to passengers. When fuel prices fall, however, ticket prices typically take much longer to respond.

Jet fuel, the airline industry’s second-largest operating expense behind labor, spiked after fighting erupted in the Middle East earlier this year, prompting many carriers to raise fares. Although fuel prices have since eased, airlines continue to benefit from steady demand and have little financial incentive to reduce ticket prices.

Airlines Reporting Corporation Chief Commercial Officer Steve Solomon said fuel costs are only one piece of the pricing equation. Ongoing geopolitical uncertainty and consistent demand for travel have also contributed to higher fares.

Competition has also changed. Spirit Airlines’ bankruptcy and shutdown in May removed one of the nation’s largest ultra-low-cost carriers, eliminating a major source of downward pressure on ticket prices. Kheel said replacing that lost capacity won’t happen overnight, allowing airlines to keep fares high while available seats remain limited.

Travel patterns have also shifted since the pandemic. Kheel said more passengers are paying for premium cabins and upgraded travel experiences rather than seeking the lowest possible fares, making it even more difficult for the ultra-low-cost business model to regain its footing.

For travelers hoping lower fuel prices would quickly translate into cheaper flights, industry analysts say that relief is likely to take longer than expected as airlines continue to capitalize on healthy demand and a changing marketplace.