Rising fuel costs, TSA shortages are piling up for airlines

Tuesday marked day 18 of the war in Iran. Oil prices are fluctuating, but high — around $95 a barrel on Tuesday. Commercial air space in much of the Middle East remains closed. And at airports in the U.S., lines keep getting longer as the partial shutdown of the Department of Homeland Security stretches into a second month and more TSA agents call off. All of this is adding up for airlines.

Just a few weeks ago, airlines were paying about $2.50 a gallon for jet fuel. On Tuesday, it was closer to $4 a gallon.

“That is putting extreme financial pressure on airlines,” said Charles Duncan, a partner at AltitudeX Aviation Group.

Duncan said no one has any idea how long those high fuel prices will last.

“Which makes it nearly impossible to plan for,” he said. “So I think everyone is taking it day to day, week to week.” 

The same is true with the closure of commercial airspace and severe disruptions at key airport hubs in the Middle East, including in Dubai, Doha, and Abu Dhabi.

“The industry has really had to shift capacity and passengers have had to scramble to find new ways to travel globally,” Duncan said.

The options for flying from Europe to Asia have narrowed, and Mike Stengel, partner at AeroDynamic Advisory, said in many cases the new routes are longer.

“These detours can add significantly to flight time, which means more fuel,” he said.

That also means higher costs.

Airlines based in the Gulf are more affected than others. But Stengel said all are scrambling to adjust their operations and account for spiking fuel prices. 

“If I were an airline executive, fuel would be my number one concern on cost items,” he said.

Airline profits are highly sensitive to changes in fuel prices. And Dan Akins, a partner and aviation economist at Flightpath Economics, said airlines will pass higher prices on to consumers as much as they can.

“The problem is, once you start doing that, you destroy some of the demand,” Akins said.

There’s another problem too, he said. It’s not just higher airfares that could make people less inclined to fly — it’s also safety concerns over the conflict in the Middle East, plus long security lines and staffing shortages at U.S. airports because of the partial government shutdown.

“Combined, all of the micro elements of this have the makings of a bigger macro problem,” Akins said.

For now, demand for air travel is still strong. But the longer the war in Iran and the shutdown drag on, the more the risks mount for airlines and the economy.