United Airlines CEO Scott Kirby has warned that airfares could increase by up to 20% if jet fuel prices remain elevated due to the ongoing surge in oil prices, which has been attributed to the war in Iran [1]. Kirby stated in a Bloomberg TV interview that United has already reduced its capacity by 5% on routes that are not profitable and do not cover the higher fuel costs, although demand for air travel remains strong at present [1]. He emphasized that the company is preparing for the possibility that oil prices may rise as high as $175 a barrel and stay above $100 a barrel through the end of next year, describing this forecast as 'reasonable' but hoping for a better outcome [1].
Kirby noted that if oil prices reach the peak of United's forecast, it would constitute a 'stress event' for the airline industry, though not as severe as the COVID-19 pandemic [1]. He explained that United does not hedge fuel costs due to its size, as such actions would move the market, and instead has tripled its cash reserves to manage margin pressures [1]. The CEO estimated that maintaining current oil prices would result in an $11 billion expense for United, necessitating a 20% increase in airfares to break even and cover these costs [1].
Despite the recent rise in airfares by 15%-20%, Kirby pointed out that prices in 2025 are still 2% lower than in 2019, even though inflation has increased by 25%. The recent fare hikes are only covering half to 60% of the inflationary increase [1]. Kirby also mentioned that United is anticipating changes in consumer demand if oil prices remain high, with the expectation that demand will soften as ticket prices rise [1].
Market reaction was reflected in United Airlines Holdings Inc. (UAL) shares, which closed at $93.51, down 0.45 points or 0.48% [1].
CONCLUSION
United Airlines is preparing for a significant increase in operating costs due to elevated oil prices, warning that airfares may need to rise by up to 20% to offset these expenses. While demand remains strong, the company expects it could soften if ticket prices continue to climb. The market has responded negatively, with UAL shares declining, highlighting investor concerns about profitability and future demand.