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The Rise and Fall of Master Limited Partnerships

The Rise and Fall of Master Limited Partnerships

Master limited partnerships (MLPs) were…

Felicity Bradstock

Felicity Bradstock

Felicity Bradstock is a freelance writer specialising in Energy and Finance. She has a Master’s in International Development from the University of Birmingham, UK.

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Get Ready To Pay More For Your Next Flight

  • Rising oil prices are having a significant impact on the cost of domestic flights in the U.S.
  • Fares for domestic flights have soared by 36% since the beginning of 2022.
  • Despite the rise in costs, demand for travel has never been stronger.

Flight prices are set to soar as jet fuel gets more and more expensive. Rising oil prices not only affect energy costs but also travel and petroproducts. As the travel demand continues to increase in response to Covid restrictions easing worldwide, reaching almost pre-pandemic levels, it may not be so easy for people to get away this summer as domestic and international flight fares rise higher and higher. And this is just the tip of the iceberg, as other consumer goods are also expected to surge. Airfares have been unpredictable over the last two years due to the uncertainty in demand because of the Covid-19 pandemic. However, now it seems that even budget airlines are going to have to raise their prices substantially to cover increasing fuel costs. Jet fuel prices have risen by 45 percent this year to $3.29 a gallon, after reaching $4.07 earlier in March - the highest price since 2008. With jet fuel contributing 20 to 25 percent of airline operating costs, this has a huge knock-on effect. 

The cost of domestic flights in the U.S. has risen by around 36 percent since the beginning of 2022, reaching 2019 prices. For people tracking flight prices, many are shocked to see prices double over the space of just a few weeks, with the coming months looking even more uncertain. Some from the aviation industry have even suggested that prices will increase by as much as 6 percent a month until August. 

Airlines are now altering their prices rapidly in response to the change in fuel costs, having learnt to adapt to the volatility in demand during Covid. Many airlines are now responding more rapidly to changes that may affect either costs or demand to ensure their security. With several airlines narrowly avoiding bankruptcy during the pandemic, they are willing to leave nothing to chance with the recent international conflict situation.

Yet some airlines are optimistic about maintaining more accessible prices with Delta believing high demand will help to offset fuel costs. President of Delta, Glen William Hauenstein, stated: "I have never, and I don't think our revenue management team has ever, seen demand turn on so quickly as it has after the Omicron.” Yet, some airlines have decided to cut scheduled flights because of rising costs. Alaska Air has reduced its trips by around 5 percent for the first half of 2022, while Allegiant Air cut its second-quarter flights. 

Related: Unsold Oil Forces Russian Operator To Cap Pipeline Flows

As many see ticket prices rising week-on-week, it has become clear that booking in advance has become a necessity once again. People came to rely on competitive prices from budget airlines during Covid when they were battling against faltering demand. But now demand is up, and fuel prices are set to rise even higher, the need to book in advance is evident. Scott's Cheap Flights founder, Scott Keyes, stated “The past two years lulled people into the sense that they can get cheap last-minute flights.” But “That's not the case in normal times,” he said. 

Higher travel prices are just the latest in a long line of rising costs. Households have had to tackle rising grocery, energy, and rent costs in recent months as inflation soars and oil and gas shortages drive prices up. So far, consumers have simply dealt with rising costs as they gradually increase across several living expenses, but just how long will this last? With inflation set to continue rising, these costs could soon create a backlash from consumers. Stifel analyst Chris Growe explained how customers may respond to concerns over rising food costs, “That could lead to greater levels of elasticity for the branded food products. With private label products on average roughly 35%-40% below the price of branded food we could start to see some trade down activity.”  

This follows the latest Consumers for March survey from the University of Michigan that showed that Americans expect their personal finances to worsen this year, with the largest proportion since the mid-1940s. Around 50 percent of the households surveyed see their inflation-adjusted incomes declining in the coming months. In addition, almost one-fifth of Americans surveyed in a Gallup poll said the high cost of living or inflation was the most worrying challenge in the U.S. at present. But wage increases and greater job opportunities following the pandemic are offering some optimism to consumers, somewhat offsetting these concerns. 

As flight prices are expected to continue increasing over the next year, consumers will have to change their behaviour if they hope to get tickets for anywhere near the prices experienced during the pandemic. Travel may simply become too unaffordable for many already contending with rising living costs. Energy prices are continuing to rise as the world faces shortages in the face of the Russian conflict with Ukraine, and food prices are also rising leaving many worried about making ends meet. 

By Felicity Bradstock for Oilprice.com


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