Soaring jet fuel prices ground budget airlines and force fare hikes

Rising jet fuel prices have forced several airlines to halt operations or raise fares. The surge, driven partly by the Middle East conflict, has hit budget carriers hardest. Some have already suspended flights, while others are adjusting strategies to cope with the financial strain. Jet fuel costs in Mexico jumped by 101% between January and March 2023. This steep increase has pushed airlines like Magnicharters to suspend all flights, as industry experts call current prices unsustainable. Similarly, Spirit Airlines stopped operations due to a liquidity crisis linked to soaring oil costs.

Fuel typically makes up 35% to 40% of an airline’s operating expenses. For every 10-cent rise in jet fuel price per gallon, an airline’s EBITDA falls by one percentage point. This pressure has left low-cost carriers particularly exposed.

Volaris and Viva Aerobus, known for their budget fares, face significant challenges. Volaris has responded by increasing ticket prices and adding more international flights. Meanwhile, Aeroméxico is targeting passengers willing to pay higher fares when costs climb.

Analysts at Standard & Poor’s warn that Azul is the most vulnerable among LATAM Airlines, Azul, and Aeroméxico. The airline’s financial health is under threat as fuel expenses continue to rise. The sharp rise in jet fuel prices is reshaping the airline industry. Budget carriers are either raising fares or cutting services to survive. With fuel costs remaining high, further adjustments are likely in the coming months.