Airlines say fares won't fall with fuel. Don't take that bet at face value

What kind of industry shrugs when fewer customers show up? One that has decided empty seats are cheaper than discounts. That is the message from U.S. airlines this earnings season, and it is more interesting than the headline about fares.

American Airlines CFO Devon May told the Financial Times that "if fuel comes down, I think airfares probably stay largely where they're at right now," according to Fox Business. Third-quarter revenue rose 19%, but fuel expenses jumped 67.5%, and American now guides to an adjusted full-year loss of $1 to $1.60 per share. The Bureau of Labor Statistics put September airfares up 22.4% from a year earlier.

The twist is who is flying. As CNBC reports, U.S. checkpoint screenings are on track for their first annual decline since 2020, and American's load factor fell to 83.4% from 86%. Its commercial chief said the airline is "actively prioritizing yield versus load factor."

Fuel is the excuse; discipline is the strategy

May's own words are the tell. He said price increases "ideally should have happened back in 2024, but the industry found itself in an oversupply environment." In our reading, the problem was never only costs; it was also too many seats. We think fuel gave airlines a justification to trim schedules, and trimmed schedules make fares stick.

We think that is the real story. If a price survives the removal of the cost that was used to justify it, it was not a cost pass-through. It was a supply decision. Add the collapse of Spirit Airlines in May and the fact that the four biggest carriers hold 82.1% of the seats flown by U.S. airlines this year, up from 79.7% in 2022 (CNBC, citing Cirium), and the industry looks more like a club than a brawl.

Investors: pricing power is not a permanent asset

Here is where we would be skeptical. Capacity discipline works only while everyone keeps it. Reuters-sourced reporting syndicated by U.S. News says six major airlines still plan to grow domestic capacity 3.0% in the fourth quarter and 3.8% in the first quarter of 2027. That is not shrinkage. Meanwhile, JetBlue, Frontier and Breeze are planning to grow, according to CNBC. History in this sector suggests that when fares look fat, someone adds seats.

There is also a demand question. Bank of America noted that some Spirit customers have likely stopped flying, and the smaller carriers serving price-sensitive travelers have yet to report. Bloomberg Intelligence's George Ferguson told Marketplace in September that route cuts signal airlines don't have quite as much pricing power as they may have thought. Carriers say demand is especially strong for premium seats, and in our view premium demand is usually among the first things to give when the economy slows.

And American itself is still projected to lose money this year. Strong pricing has not yet outrun fuel. This is a forecast-heavy debate, not advice: but a thesis that depends on rivals' restraint and on wealthier customers never blinking deserves a discount, not applause.

Travelers: assume the new price is the price

For anyone buying tickets, the practical read is simpler. Don't wait for fuel to fall and fares to follow. American's CFO is effectively telling you they won't. Hopper expects the most expensive holiday ticket prices in years, per CNBC.

Budget accordingly. Book earlier, preferably with flexible options, which is what experts quoted by LiveNOW from Fox suggest. Count the add-ons too: Southwest, for example, now charges extra for checked bags and front seats. The base fare is no longer the whole bill.

Our verdict

The calm of airline executives is a strategy, not a sign that all is well. For travelers, it is a reason to plan for expensive flying as the baseline. For investors, it is a reason to ask how long that kind of discipline survives without a formal agreement among rivals, with jet fuel around $4.50 a gallon on one side and new capacity on the other. Airlines may have found a higher-priced equilibrium. We would not assume they can hold it.