Airlines had the perfect conditions for jacking up fares. Then Spirit collapsed

By Chris Isidore, CNN

(CNN) — Jet fuel prices nearly doubled. Airlines cut flights. Travelers were still buying tickets.

That was already a pretty good recipe for higher airfares.

And then, Spirit Airlines went out of business.

Passengers were already paying more to fly – even before the industry lost the budget airline famous for pushing fares lower.

This was shaping up to be a very expensive summer to fly. Spirit’s demise will probably accelerate that trend.

A perfect storm

US airfares were already up sharply the week before the discount airline shut down, travel booking site Kayak and investment firm Raymond James reported.

The conditions were perfect for airlines to raise fares – bad news for bargain-seeking travelers.

Here’s why:

Jet fuel: Jet fuel prices are up 84% from January, according to Airlines for America, the US industry’s trade group, adding to costs. The International Energy Administration warned that jet fuel shortages could become a reality in a couple of weeks in Europe, which gets most of its jet fuel from the Middle East. Asia could face the same problem, because it uses Middle Eastern oil to create jet fuel at its refineries.

American refiners ship jet fuel overseas, pushing US prices higher, too.

Cut flights: That led many airlines to cut their schedules. They eliminated flights that were only narrowly profitable when fuel was cheaper – flights that are now unprofitable to fly.

Those flights, on less attractive travel days midweek or Saturday, or a less popular time of day to travel, often had the cheapest seats available for travelers.

Aviation analytics firm Cirium forecasts that in just the last week, global airlines have cut planned seat offerings by 3.6% during the June 1 to September 30 period.

“When flights get canceled, we do see prices can spike quickly due to a surge in demand, especially on the affected routes,” said Kayla DeLoache, spokesperson for Kayak.

Strong demand: Airlines have reported strong bookings for the upcoming summer travel season. Several reported record revenues.

Higher fares: Kayak’s data shows the average domestic fare now stands at $365, up $30, or 9%, from the reading on March 23, just before the war in Iran sent jet fuel prices climbing. Fares are up $70, or 24% from this time last year.

Fares are also jumping higher week to week. Raymond James reports that as of April 27, the average fare for flights within the next week costs 9% more than the week before. For flights at least four weeks in the future, typically used by leisure travelers, are 7% more expensive.

Spirit goes bust

The closure of Spirit early Saturday morning could move fares even higher.

Spirit, with its no frills base fares, often provided the lowest fares in the markets it served, and forced other major airlines to offer a certain number of similarly bare-bones seats to compete.

Spirit’s flights would have provided about 2% of the seats available for travel this summer, but in some markets, including Fort Lauderdale in Florida, Detroit and Las Vegas, it offered a much greater share of available seats.

As its passengers seek other flights, there will be fewer overall seats available, creating a supply and demand imbalance.

Prices could rise even more

More fare increases could be coming.

Elevated ticket prices so far have not been high enough to recapture the increased cost of jet fuel, said Tom Fitzgerald, airline analyst with TD Cowen, in a note to clients. Jet fuel is the second largest operating cost of airlines, behind only labor.

Airlines executives told investors last month that they expect to be able to recapture all increased fuel costs by the end of the year. Airlines have warned they expect to spend billions of dollars more on fuel this year than last year.

But Fitzgerald doesn’t think even the higher fares are going to chase away the demand for travel.

“As long as the labor market doesn’t crack, as long as the equity markets hang in, I think that should keep (demand) well supported,” he told CNN.

Fitzgerald expects a lower chance of passengers backing out of travel plans “than you’d see in a more precarious environment.”

Ironically, high gas prices may help boost demand for flights. Gas prices have surged 52% during the war, but airfares have risen significantly less than that. That could make road trips more expensive, attracting some travelers to flights, instead.

Despite the fare increases, there are still affordable flights for those who bargain hunt, said Kayak’s DeLoache.

“While prices are going up, there are a lot of deals out there,” she said. “There are ways to save if you’re flexible with your travel.”

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