Airlines face fare dilemma as fuel spike threatens travel demand

Airlines are raising fares and cutting capacity to offset surging oil prices, increasing unit costs and pressuring margins. Profitability now hinges on demand elasticity—if consumers pull back on discretionary flying in response to higher gasoline costs, industry revenues and load factors could decline materially.

Analysis

Airlines are raising fares and cutting capacity to offset surging oil prices, increasing unit costs and pressuring margins. Profitability now hinges on demand elasticity—if consumers pull back on discretionary flying in response to higher gasoline costs, industry revenues and load factors could decline materially.