Why Coronavirus Is Causing Airfares to Rise

The travel industry has been decimated by Covid-19. People aren’t flying or cruising the high seas. Now cruise operators are offering deals in an attempt to get people to get back on boats. Consumers shouldn’t expect the same from airlines.

Airfares are actually rising. It’s counterintuitive, but the cost of a flight was up in April and May. The reason is fairly simple: supply and demand.

Far fewer people are flying. That’s the demand side of the equation. But most of the world’s commercial jet fleet is parked, so while demand has cratered, so has the supply of airline seats.

Cowen analyst Helane Becker publishes a weekly fare tracker for her clients. The latest couple of reports illustrate the rising trend.

“We track 278 domestic routes across 4 fare products for
American,
Delta
and
United,
” wrote Becker in her most recent update which covers fares through May 4. “Total fares are up 10.9%.” The comparison is with the same week in 2019.

In a previous update, which covered fares through April 13, Becker found ticket prices rose 13.7% year over year. She did point out, however, that with demand down more than 90%, fare trends are erratic.

Volatility aside, rising fares in April and May may surprise a lot of people. The results are even stranger considering there is another factor that should be reducing prices. The cost of jet fuel is down.

Benchmark crude oil prices have fallen 55% year to date, and jet fuel is refined from crude oil. Falling oil should result in lower airline operating costs and, in turn, lower fares. But that isn’t happening right now.

Travelers who want a deal can look for a cruise. They appear to be a more affordable option.
Carnival
(CCL), for instance, is offering five-day cruises in September 2020 for about $108, plus taxes and fees. That’s pretty cheap. The sale goes through May 20 if investors, or anyone else, feels like they need to get away.

Of course, a restart to the cruise industry—and a recovery in air travel—is predicated on improving virus trends. A flatter Covid-19 infection curve is good news. More effective treatments would be even better news. The best news, of course, would be an effective vaccine. That would enable the airline and cruise industries to recovery faster than most investors expect.

A vaccine is something to keep in mind because a lot of bad news is reflected in the stock prices of companies in the travel industry.

U.S. airline stocks are down about 65% year to date. Cruise operator stocks have fallen almost 80% year to date, on average. Both returns are far worse than the comparable drops in the
SP 500
and
Dow Jones Industrial Average.

Bill Miller, chairman of Miller Value Partners, told CNBC Wednesday that if investors don’t own airlines, then they are “making a bet against the vaccine.” He raises a good point.

A vaccine or cure would solve a lot of problems for humanity, as well as a lot of problems experienced by the airplane and cruise ship operators.

Write to Al Root at allen.root@dowjones.com