The end of the Iran war could ease fuel prices, but experts say travelers shouldn’t expect airfare bargains anytime soon.
The Strait of Hormuz, which has been the pinch point for a big chunk of petroleum shipping, could reopen as early as this week on the news that United States and Iran had finalized a deal to end the four-month-old war.
But will that have an immediate effect on airfares in the United States?
Generally speaking, it won’t. Experts have pointed out that the Strait of Hormuz could take some time to return shipping throughput to normal because of the danger of mines. The U.S. largely sources its oil from outside the Gulf Region, but it’s worth noting that anticipated operation costs are just one driver of airfares, particularly in the U.S. domestic market.
Many airlines have already reduced flying as a result of the conflict and will be carefully watching passenger demand for future flights in addition to fuel costs. A metric that much of the industry will be watching is consumer confidence or the willingness of consumers to spend money on things like airfare. Consumer confidence had already ticked up in the U.S. in June on gas prices dropping as the war appeared to be coming to a close, but experts warned it could take some time for gas prices to return to pre-war levels as markets may remain jittery about how durable the peace agreement would ultimately be.
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Response to the proposed deal was muted in the Senate, as the Trump Administration had not shared details of the agreement with lawmakers. Not even the Gang of Eight, the bipartisan group of congressional leaders briefed on classified information, had been informed of any of the contents of the agreement by late Monday.
“If it is a secret deal, then how can I take it seriously?” Senator Thom Tillis, Republican of North Carolina, told The New York Times on Monday.
Adding to airfare problems, there are fewer seats for sale this June compared to last year, according to OAG, a company the provides flight analytics to airports. The shutdown of Spirit Airlines in May drove many airlines to add flights to accommodate travelers whose plans had been cancelled, but not all of that capacity was replaced. Many airlines also reduced flying—particularly in so-called “long and thin” markets as fuel bills increased, making it harder to turn a profit.
It can also be difficult to predict what airfares will do because many prediction sites, including Hopper, Kayak, and Google Flights base their calculations on historic price data, which limits their efficacy during events—like war—that shock markets, both on the operational cost and passenger demand sides of the equation. The sites are built for normal market conditions, not the double-whammy of price chaos created by the limiting of fuel supply and the large-scale closure of one of the globe’s key air corridors.
Passenger demand in the United States has also proven relatively resilient, even with airfare price shocks. Late last month, Southwest Airlines CEO Bob Jordan told a group of investors he expected airfares would remain higher, particularly with Spirit Airlines now out of the marketplace.
“You hate to see somebody go out of business, but with Spirit out of business, I think it helps that environment,” he told FlightGlobal. “I do think the backdrop is constructive, when fuel drops, to retain the revenue and yield increases we’ve seen.”
Even if energy prices come down quickly, airlines are still reeling from the bottom-line impacts they faced during the traditionally weak first quarter. Before the news of the peace agreement with Iran, U.S. airlines had already largely predicted that their profit potential had decreased by up to half. With strong demand for air seats remaining relatively steady going into the year’s highest-demand season, they’ll likely spend most of the summer trying to claw back the profits they lost on increased costs earlier in the year.
For air travel consumers, that doesn’t mean major fare deals unless something else changes.