United braces for high oil prices

Airlines are normally able to recoup the majority of a rise in fuel prices through higher fares. But the confluence of the Covid-19 recovery and Russia’s invasion of Ukraine and subsequent surge in oil prices has the industry in uncharted waters. “There really is no precedent for what is going on right now,” United CFO Gerry Laderman said Monday. Historically, the carrier is able to pass on 60% of fuel price spikes to travelers but, with the myriad of crises, it is unable to predict whether that will be the case again, he said. United Treasurer Pam Hendry added that it generally takes around a quarter — or three months — to price an oil price rise into airfares. The price of Brent crude, the global benchmark for oil, closed at $123.11 per barrel on Monday, according to Bloomberg data. That represents a 57% jump since the beginning of the year. The rise in oil prices has many nervous about the fallout for the airline industry. US airline stocks were pummeled on Monday with shares in the Big 3 — American Airlines, Delta, and United — all down double-digits in trading. Shares in Southwest, which has little international exposure, were down 8.6% for the day. “The next few months will be financially concerning, even though traffic is strong,” wrote Cowen & Co. analyst Helane Becker on March 4. US carriers are likely to lower their financial guidance for Q1, which was already hit by the Omicron variant in January and February, and maybe for the year as a result of the run up in crude prices, she added.<br/>