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Walk into any US airport today, and you may end up in a security line that stretches past baggage claim. You may hear a muffled voice announce over the intercom that your flight is—once again—delayed. And you can pay even more for this use.
Air fares have risen since the start of the war in Iran, as airlines grapple with rising jet fuel prices and new risks of flying in and around the Middle East. Business Inside found that the average price of a flight from one end of the United States to the other rose from $167 in February to $414 in mid-March. Abroad, ticket prices for major routes connecting Europe and Asia have risen, for data from Alton Aviation Consultancy: The Hong Kong-London route is 560 percent more expensive than it was last month, and the Bangkok-Frankfurt route is up 505 percent. (Flights between the two continents would normally go through the Middle East.) And tickets are likely to remain expensive for some time.
Americans are already seeing price increases at airports and at the pump—the average cost of gas in the United States he’s gone from $2.98 a gallon to $3.98 in the past month—but the breadth of the war’s economic consequences is beginning to become clear. An energy shock can have a wide-ranging effect on the prices of all types of consumer goods, including clothing, food and computers (also: party balloons) What is happening to airline tickets is a preview of what may follow for other industries.
“Airfare is really the canary in the coal mine,” my colleague Annie Lowrey, who writes about economic policy, told me. “There is no other major consumer product or service I can think of that is more sensitive to energy costs.” Jet fuel makes up about 30 percent of the cost of a plane ticket, and most of that increase is passed on to customers. When Iran closed the Strait of Hormuz earlier this month, it cut global oil supplies, and prices. shoot up. The average price Jet fuel rose more than 58 percent in the first week of the war and has risen more than 10 percent every week since. Airlines began to feel the problems immediately, which soon began to affect tickets—dynamic pricing systems allowed companies to change what they charged per seat in real time.
Airlines have always had thin margins. Oil is an industry high operating costs and can represent about 25 percent the total annual expenditure of the company. American Airlines recently said it will have to spend money an additional $400 million this quarter. “If fuel prices stay where they are today, that’s an $11 billion cost to us,” United Airlines CEO Scott Kirby said. he said this week. He also suggested that, in order for the company to operate effectively, it would need to raise the price of other tickets 20 percent. That direct correlation—as oil prices rise, so do airfares—helps explain why the impact of the Iran war on airline tickets has been so immediate. A similar dynamic is at play in the transportation industry: When the cost of diesel goes upso are the rates for ground transportation contracts.
Another big picture issue affecting air fares is related to aircraft capacity. Over 52,000 flights to and from the Middle East have been canceled since the start of the war. Non-cancelled flights can take longer routes around the Middle East, using more fuel and putting more pressure on airlines to compensate elsewhere, Martin Dresner, a logistics professor at the University of Maryland, told me.
An Iran war could also raise prices for semiconductors (based on helium, most of which come from the Middle East), textiles (many synthetic fibers, including polyester, are made from oil), and aluminum products, as well as any consumer goods that travel via air cargo. Oil additional payment accounts for about 19 percent of the cost of package delivery in the United States, and as shipping and handling costs rise, so do the price of vegetablesAnnie said. Businesses that sell non-perishable goods such as computers and clothing may respond by selling products and then, eventually, raising sticker prices.
Many of those effects will not be felt immediately. Take urea, a nitrogen-rich fertilizer that is essential to modern agriculture. Most of its international supply comes from the Middle East, and the price of urea has increased by 50 percent since the war began. While farmers may react directly to those prices, consumers may not experience price changes over time, due to the nature of the agricultural supply chain. A decrease in urea leads to a decrease in yield, which leads to fewer and more expensive food products – a more indirect relationship than that of jet fuel and airline fare.
If only the crisis had been fully resolved now, some of these issues would not have occurred, and the world’s oil supply would have started to recover. But even if the war ended today, “we’re looking at several months until production is fully restored, at least,” Jason Miller, a supply chain professor at Michigan State University, told me. Airlines will see higher costs until fuel supplies recover—which is probably why the CEO of United Airlines has been telling people to book their summer travel tickets as soon as possible, before prices rise even more. Ultimately, this economic squeeze may outlast the war that created it.
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Today’s news
- President Trump sign the executive order to pay TSA workers, passed Congress after lawmakers failed to agree on a broader funding bill for the Department of Homeland Security. This comes after GOP House leaders rejected a test the Senate passed earlier this morning to reopen DHS without funding for immigration enforcement.
- The FBI said so hackers targeted Director Kash Patel’s personal email addressafter a group linked to the Iranian government claimed responsibility for posting the allegedly stolen material online. The agency said that much of the data appears to be outdated and does not include government information, and that it is working to investigate the situation.
- Secretary of State Marco Rubio said that US military campaign in Iran “ahead or ahead of schedule” and it could last for weeks, although he admitted that “we have some work to do.” At the same time, Israel’s Defense Minister said that Israel’s attacks on Iran will “increase and expand” because Tehran has ignored warnings “to stop firing missiles at Israeli civilians.”
Dispatches
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Evening Read
Very Powerful Men Who Think Self-Examination Are Dumb
By Thomas Chatterton Williams
America’s technological oligarchs are not healthy. From their point of view, looking inward is a waste of time better spent moving quickly and breaking things, or gathering money and consolidating power.
That thesis received further confirmation earlier this month when venture capitalist Marc Andreessen he said that he engages in “zero” investigation – or at least “as little as possible.” Andreessen, a billionaire AI evangelist, was speaking with broadcaster David Senra, who enthusiastically endorsed it. Senra explained that he learned self-examination was useless by reading 410 biographies of entrepreneurs. “Sam Walton didn’t wake up thinking about his inner self,” Senra said, referring to the Walmart chief. “He just woke up like, I love building Walmart; I will continue to build more Walmartsand I kept doing it over and over again.”
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Cultural Breakdown
Investigate. Most people have a smartphone. But many want to use it sparinglyJulie Beck writes.
Take a look. Hoppers (out now in theaters) offers a surprise take on the classic talking-animal story, David Sims argues.
Rafaela Jinich contributed to this journal.
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