Rising oil prices amid Russia-Ukraine war complicates airlines’ pandemic recovery — and could also hike US airfares

Americans who were planning to see Russia this spring and summer may have to reconsider their plans in the wake of a new US State Department advisory telling citizens not to travel to the country as its war against Ukraine continues.

“Do not travel to Russia due to the unprovoked and unjustified attack by Russian military forces in Ukraine, the potential for harassment against US citizens by Russian government security officials, the embassy’s limited ability to assist US citizens in Russia, COVID-19 and related entry restrictions, terrorism, limited flights into and out of Russia, and the arbitrary enforcement of local law,” the State Department’s Monday alert said, following a Thursday alert for American travelers not to go to Ukraine.

Americans in Russia should immediately look for outbound flights, the new alert added. The State Department also advised Americans not to travel to Belarus and Moldova.

These are more complications for a year that was sizing up to be a very good one for domestic and international travel. Some forecasters said passengers were going to keep stepping out to see the world after the pandemic halted so many trips in 2020.

But with spring and summer’s warm weather around the corner, Russia’s invasion of Ukraine throws a violent new question mark into those travel plans abroad — just as the attack has roiled everything from the stock market to everyday gas prices.

When it comes to travel, one thing is clear: At a time when prices are already climbing, observers say there’s a chance for even steeper airfare prices that eventually soak up higher jet fuel prices.

When fighting first broke out Thursday, US crude settled at $92.81 a barrel after touching the $100 mark earlier in the day. As the fighting continued Monday, prices were surging higher, moving towards the mid- to upper $90s for West Texas Intermediate crude for April delivery CL.1,
and May Brent crude BRN00,
at one point up to nearly $98.

Airlines hedge fuel prices, committing to buying a certain amount of fuel in the future at a predetermined price. So any immediate rise in oil prices won’t be passed onto passengers right away.

But fuel prices are only going in one direction. Last week, the price of jet fuel was more than $107/barrel, according to the International Air Transport Association. That’s a nearly 4% increase from a month ago and up almost 57% from a year ago, the trade organization said. By Friday, Feb. 25, the jet fuel price again flew higher, increasing to $111.13/barrel, the organization said.

Last week, the price of jet fuel was more than $111/barrel. That’s more than a 5% increase from a month ago and up almost 59% on the year.

“Higher oil prices, if they are sustained, are going to show up in travelers’ ticket prices,” said Scott Keyes, founder of Scott’s Cheap Flights, which scours ticket prices to find deals for its members.

Jet fuel is derived from crude oil and fuel is an airline’s second largest operating expense behind labor, explained professor Bijan Vasigh, an economist at Embry-Riddle Aeronautical University who teaches and writes on the aviation industry’s finances.

With fuel being such a major expense for an airline, “higher oil prices would translate to higher ticket prices,” Vasigh said. As a result, carriers would have “no choice” but to pass on some of those costs, he said.

Related: Tour operators, airlines and cruise lines shun Russia: ‘A war in Ukraine is as far from our European vacation dreams as a war in Guatemala would be from Texas or Florida’

Travel complications

It’s too early to know how much Russia’s invasion will increase the price of jet fuel, and when those price increases will become noticeable to consumers, Vasigh said. But the conflict comes at a time when jet fuel prices historically increase in order to meet increased seasonal demand from May to mid-September, Vasigh noted.

Some passengers going to Asian and Middle Eastern destinations may also have to travel longer because they are traveling more circuitous routes to avoid the vast Russian airspace, Keyes said. Longer routes require more fuel and more labor costs, which could find their way back into ticket prices, he said.

Ukraine on Thursday closed off its airspace for civilian flights while Russia closed some portions of its airspace, according to Reuters. Monday’s State Department alert noted “an increasing number of airlines are canceling flights into and out of Russia, and numerous countries have closed their airspace to Russian airlines. In addition, air space around southern Russia is restricted and a number of airports in the area have closed.” European countries and Canada closed their airspace to Russian airlines on Monday.

“The presence and possible use of a wide range of ground and airborne warfare systems poses a high risk for civil flights operating at all altitudes and flight levels,” the European Union Aviation Safety Agency said.

Airlines were warned not to fly over Ukraine, or in Belarus or Russia within 100 nautical miles of Ukraine’s borders. “In particular, there is a risk of both intentional targeting and misidentification of civil aircraft,” it added.

Poland’s Prime Minister Mateusz Morawiecki said on Friday that Poland was preparing to close the country’s airspace to Russian airlines. On Thursday, the UK banned the Russian flagship airline Aeroflot from landing there, and on Friday Russia banned British air carriers from crossing its airspace or landing at Russian airports.

Airfares were already increasing

Airfares were already increasing as more people got back on flights in 2021.
Last year, US airlines carried 670.4 million passengers, according to preliminary data from the Bureau of Transportation Statistics.

That was an 83% increase from the roughly 300 million passengers who flew in 2020 during the height of the pandemic, but a 27% decrease from the roughly 916 million passengers in 2019.

International travelers accounted for 9% of last year’s passengers, the agency noted.

Some 1.75 million travelers passed through TSA checkpoints on Wednesday, double the amount from the same time last year.

The same trends can be seen now: 1.75 million travelers passed through Transportation Security Administration checkpoints on Wednesday. That’s more than double the amount from the same time last year, but under the 2 million mark from the same point in 2020, just before COVID-19 was officially declared a global pandemic.

The same trend showed Sunday, with 2.1 million travelers passing through checkpoints, versus 1.1 million at the same time last year. At the same point in 2020, 2.3 million people passed through the checkpoints.

As flights have bounced back, so have ticket prices. Travelers paid an average $314 for domestic airfare in 2021’s third quarter, according to the agency. When adjusting for inflation, that’s up from around $250 a year earlier.

So far in February, the average cost of international airfare is $681, according to data from Hopper.com. That’s also up from the $647 average in January, but down from $756 in December and $783 averages in November, two big months for holiday travel.

Some experts are still bullish on travel trends

Like so much else in the unfolding conflict, Keyes said the future implications for international travel are unknown.

On the margins, some travelers might be re-thinking plans to Europe and Russia, but right now he doesn’t see the conflict squelching demand. “I would be surprised if travel demand diminishes. It just might end up getting redirected somewhat,” said Keyes.

Earlier Thursday, Glenn Fogel, CEO of Booking.com BKNG,
told CNBC that Russia’s attack on Ukraine was “tragic. But I don’t think it is going to impact a great deal of travel.” He added, “We are looking at numbers for the summer that are better than they were at this time in 2019.”

That bullish assessment may have been reflected in Thursday’s trading session for major airlines including Delta Air Lines DAL,
United Airlines UAL,
and American Airlines AAL,
All three opened sharply lower, but trimmed their losses later in the day. By the start of Monday’s session, all three stockers were trading lower, mirroring a larger slump in the markets on Monday morning.

Benchmarks initially plunged on Thursday, but made an epic comeback in a day when President Joe Biden announced a new round of sanctions against Russia. The S&P 500 SPX,
Nasdaq Composite COMP,
and Dow Jones Industrial Average DJIA,
all bounced back over the next 48 hours, after initially falling on the news of Russia’s invasion.

Yet by Monday morning, the Dow opened 400 points lower as investors weighed the mounting number of financial sanctions piling up against Russia, and their potential consequence for the markets.

This story was updated on Feb. 28, 2022.

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