Expect higher tariffs as jet fuel prices rise, negatively affecting competitors’ vaccination strategies

United Airlines CEO Scott Kirby said on Wednesday that jet fuel prices are rising to levels not seen since the Covid pandemic, and this will drive ticket prices up.

“Higher jet fuel prices are driving up ticket prices,” Kirby told CNBC’s Squawk on the Street. “We’ll get through this in the end.”

United is forecasting an average fuel cost of $ 2.39 per gallon in the fourth quarter, when bookings are expected to rise due to year-end holidays and recently lifted international travel restrictions. That’s up from $ 2.14 per gallon in the third quarter and $ 2.02 per gallon on average in the fourth quarter of 2019.

Delta Air Lines warned last week that more expensive fuel would cut the company’s fourth-quarter earnings.

According to S&P Global Platts, jet fuel in the US on Tuesday cost $ 2.3282 a gallon, up 115% from a year ago.

Kirby said that higher demand usually translates into higher fuel prices. The increase in travel is a welcome trend for an industry that continues to struggle to return to profitability.

United posted a $ 473 million profit in the third quarter thanks to $ 1.1 billion in federal aid, although the rise in delta Covid-19 cases affected its bottom line. The Chicago-based airline has confirmed that it expects its 2022 ex-fuel costs to be lower than 2019.

United shares fell nearly 1% in Wednesday afternoon trading.

Kirby cited United’s relatively conservative increases in capacity over the past few months when asked why the carrier didn’t have massive cancellations that hit competitors like Southwest Airlines last week. Southwest recently slashed its fall schedule and, after cutting off more than 2,200 flights earlier this month due to bad weather and staff shortages, said it could cut further.

“We didn’t go skiing,” he said during a phone call with analysts and reporters on Wednesday.

Kirby also said the Biden administration’s vaccine regulations could jeopardize the activities of some of its competitors. United says more than 96% of the company’s employees have already been vaccinated against Covid-19 after the company fulfilled its own mandate in August, which puts employees at risk of losing their jobs if they do not comply with the rules or receive an exemption.

American Airlines, Southwest Airlines and others like United are federal contractors and have said they will abide by the government mandate. American and Southwest said this week that they will not send employees on unpaid leave if they apply for or receive medical or religious benefits, which is different from United’s approach, which says employees with benefits will be sent on unpaid leave. However, a federal judge in Fort Worth, Texas temporarily banned United from doing so due to a lawsuit filed by employees over the practice.

The deadline for fulfilling the federal mandate is December 8th.

“Customers can book with confidence with United, we are done [implementing the mandate]Kirby said. “But if you book an airline ticket that doesn’t require a vaccine, they have government regulations that they must follow. Let the buyer be vigilant. “

American declined to comment, and Southwest did not comment immediately. Both airlines are due to report third-quarter results before the market opens on Thursday.

One gray area for United and other carriers is whether regional airlines operating many of their routes will be subject to the mandate of a federal contractor who has no testing facility, or future regulations for large companies that would likely allow employees to get tested regularly. instead of vaccination.

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