As of this morning, March 5, 2026, oil futures are over $77 barrel, up from $65 this time last week - a 15% increase.

On cue, airlines are warning that air fares will increase. Because, why wouldn’t they? It costs more to fly, so you, dear traveler, should pay more to fly.

Only, it never actually works that way. Changes in oil prices are rarely matched by changes in fares paid. Key words: “fares paid.”

It’s an analysis we’ve looked at several times before, yet it generates new questions and subsequent controversy whenever there is a sudden change in oil prices. If it costs more to fly, why wouldn’t fares increase?

To be clear, airlines would certainly prefer for air fares to increase with costs. But then, airlines would prefer for air fares to increase without costs. The takeaway here is airlines want fares to increase. So why don’t they just raise fares?

Because travelers may not pay them.

And here, dear reader, is where the rationale for you paying more falls apart. Airlines can offer the fares they think travelers should pay, but travelers ultimately decide if they will buy the ticket. When fares rise, there could be cheaper fares on other airlines, or travelers may consider not traveling at all. If nobody buys the higher fares, seats go empty and airlines lower fares. And THAT is how you go from airlines warning of higher fares to average fares not changing.

But fares and the price of oil do tend to move in the same general directions. But so do ice cream sales and crime. The standard example of how correlation is not causation includes the reality that ice cream sales increase in summer, as does crime. That does not mean ice cream causes crime (though, when asked what level of misdemeanor I’d be willing to commit for a pint of Graeter’s ice cream, I admit I was not proud of my answer).

Of course, we all know that in reality, ice cream sales rise in summer because ice cream is tastier during the warm months, while crime follows the same warm months, not the ice cream. The same is true of oil prices and air fares.

Looking at U.S. domestic fares, for which we have relatively solid data, even the correlation between fares and oil prices is weak. It is there, though barely, but for different reasons. Similar to our ice cream criminals example, oil prices don’t cause high fares, but the reason for high oil prices is often the same reason for high fares: because people want oil and travel. In other words: demand.

For the statisticians in the room, the correlation between the change in fares and oil prices results in an r-squared value of .012. For the non-statisticians, it’s basically a coin toss.

High oil prices do not cause high fares.

But, that requires us to take a deeper look into what does affect fares. If oil prices aren’t causal to average fares paid, what is?

The demand for air travel is closely tied to overall economic growth. This is intuitive, and not necessarily our answer for what chases fares. However, consider the above chart. There is a causal relationship between economic activity and total ticket revenues paid. Economic growth creates more revenues from travelers, or in other words, demand.

We can create a multiple between total ticket revenues and demand. Sometimes those revenues exceed and economic growth and the multiples increase, or they lag and decrease. What becomes intersting is when you consider how the overall average fares react to the relative position of that demand to GDP growth.

That looks about right, and impressively close. When ticket revenuse exceed about .01% of GDP, fares were higher. When overall demand relative to GDP fell, so did fares.

At the risk of stating the obvious, prices connect the differences between supply and demand. Supply and demand in air travel are capacity and GDP.

Oil prices and air fares may both rise, but they are both reacting to increases in demand, not each other. In the instance of geopolitical shocks where oil prices increase without demand, we more often see air fares drop. In this case, the high prices of oil are impacting overall demand, for which air fares react accordingly to keep the balance between with supply intact.

Indeed, we see the expected relationship between our previous multiplier and air fares. Still not a perfect correlation, we are much closer to seeing a causal relationship with an r-squared of .55.

What does this mean for those of us who don’t speak statistics?

It means air fares are 55 times more sensitive to changes in demand than changes in the price of oil. Oil prices may be rising today, but demand certainly isn’t going up.

But, thinking from a different perspective, how could high oil prices impact fares? At some point, airlines will have to raise fares based on higher costs, right?

They can try. And airlines certainly are trying. But it’s not like airlines weren’t trying to get better fares before. The rise in the price of oil doesn’t change that scenario.

But it does make the capacity deployed that much more expensive. Airlines could choose to reduce capacity as a result of high oil - hoping competitors would do the same - and fares would increase.

But we’ve yet to see any capacity reductions due to costs. What impacts we have seen are more a reflection of softer demand, particularly for travel into the affected areas of the Middle East. That reduces fares with higher oil - the exact opposite of what would be expected.

And so the industry dusts off the old playbook of $80/bbl oil, even if it’s still well below 2022 highs and last decade averages. But, for those looking for higher air fares, don’t look to the price of oil, look to the number of seats.

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