Not losing money, just losing customers? Global airlines face a dilemma

Ask AI · How do airlines balance profitability and customer demand amid high fuel prices?

The airline industry enters a whole new game

As fuel prices rise, airlines worldwide have begun raising ticket prices and cutting capacity to cope with cost pressures.

But the industry is already stuck in a dilemma: whether it can maintain profitability ultimately depends on whether consumers will reduce travel because higher gasoline prices raise costs and strain household budgets.

More than a month has passed since the conflict between the US and Iran broke out. Before that, the airline industry had expected record profits of 41 billion USD in 2026. But now, with aviation fuel prices doubling, this outlook is at risk, forcing major carriers to reassess their route networks and operating strategies.

Under cost pressure, Spring Airlines has announced that it will raise domestic route fuel surcharges starting April 5. Industry insiders generally expect major carriers such as Air China, China Southern, and China Eastern to follow suit.

Although April is traditionally a low season for civil aviation, the overlap of spring break for primary and middle schools and the Qingming Festival creates a 6-day mini-holiday, driving ticket prices up broadly:

Data from Trip.com show that as of March 22, during the Qingming holiday, the average base airfare for civil aviation was 656 yuan, up 10.1% year over year; the all-in (tax-included) ticket price was 718 yuan, up 5.8% year over year.

In overseas markets, from United Airlines in the US to Air New Zealand to Scandinavian Airlines, multiple carriers have already announced capacity cuts and higher fares. Others have also added fuel surcharges.

Aviation industry expert Rigas Doganis, who previously served as the head of Olympic Air in Greece and was a director at UK easyJet, said: “Airlines are facing existential challenges.”

He added: “On the one hand, to stimulate weak demand, airlines need to cut prices; on the other hand, rising fuel costs force them to raise prices.”

A comparison chart of fuel prices and the industry’s profitability

Last year, despite ongoing supply-chain issues continuing to affect new aircraft deliveries, global air passenger traffic still hit a new high—about 9% higher than pre-pandemic levels.

After the pandemic, strong travel demand, combined with constrained capacity growth, allowed airlines to increase load factors, thereby gaining stronger pricing power.

But in the current environment, the scale of fare increases needed to make up for soaring fuel costs is huge, while consumers are also facing cost-of-living pressure from rising gasoline prices, which may curb discretionary spending, including travel.

Andrew Lobbenberg, Head of European Transportation Industry Stock Research at Barclays, said: “If you want to raise fares, the only way is to reduce capacity.”

Aviation fuel, passenger demand, and yield rates

He added: “I expect this time will be similar—historically, whenever there’s a crisis, the industry does this: it starts cutting capacity.”

Last week, United Airlines CEO Scott Kirby, in an interview with ABC News, said that to cover rising fuel costs, fares need to increase by about 20%.

Cathay Pacific has raised fuel surcharges twice in the past month. Starting this Wednesday, the Sydney–London route will charge a fuel surcharge of 800 USD. Before the conflict with Iran, the round-trip economy class fare for this route was about 2,000 Australian dollars (about 1,369.6 USD).

Analysts point out that low-cost carriers may face even greater pressure, because their customer base is more price-sensitive, while traditional carriers such as Delta Air Lines and United Airlines are stepping up efforts to attract corporate customers and premium travelers.

Nathan Gee, Head of Asia-Pacific Transportation Research at Bank of America, said: “For travelers who are even more price-sensitive, even short-haul flights may be downgraded to alternative modes such as trains and long-distance buses.”

This Middle East conflict is the fourth fuel-price shock the airline industry has experienced in this century, and it is also the first time a carrier (such as Vietnam Airlines) has expressed concerns about the physical supply of fuel itself, due to constrained access to the Strait of Hormuz.

A series of mergers and acquisitions between 2008 and 2014 consolidated the US’s eight major airlines into four, pushing the industry into a phase of tighter capacity control. At the same time, low-cost carriers such as Ryanair and India’s IndiGo have maintained a cost advantage through single-aircraft fleets and fast turnaround.

In theory, replacing older aircraft with newer, more fuel-efficient models is an effective way to reduce costs. But after the pandemic, tight supply chains and issues with next-generation engines have led to delivery delays.

In addition, although US ultra-low-cost carriers have the most fuel-efficient new fleets in the industry, if demand weakens, financing and the costs of new planes could instead become a burden on profitability.

Dan Taylor, head of IBA Consulting, an aviation consulting firm, said that this round of fuel-price shocks is expected to further widen the split across the industry.

He noted: “Carriers with strong balance sheets, pricing power, and stable financing channels will be better able to absorb sustained pressure, while carriers with weaker profitability and limited access to financing will face greater financial pressure.”