Why do US airlines keep fares high despite lower jet fuel?

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US airlines keep fares high because fare increases have not fully caught up to fuel costs, and limited seat growth reduces the incentive or ability to trigger a broad fare drop even as jet fuel falls.
US jet fuel spot prices fell sharply to US$2.85 per gallon on June 17 from an early April high of US$4.88, which would cut the US airline industry’s annual fuel bill by more than US$40 billion if sustained. Yet ticket prices and bag fees rose as fuel surged, while schedule cuts only partially offset the fuel-cost jump, so fares are still broadly lagging the prior run-up in costs. At the same time, limited capacity growth and constraints in the US market give airlines room to keep prices up while they work to rebuild earnings.
Fuel cost declines are not instantly reflected in the books
Fuel bills reflect purchases over time, not daily spot prices, so even after recent declines jet fuel remains 54% higher than a year ago. Industry estimates also point to only partial recovery of higher fuel costs: Deutsche Bank projected US carriers would recover about 60 cents of every additional dollar spent on fuel, such as US$14.4 billion in higher revenue against US$24.1 billion in higher fuel costs. Alaska Air said it was recovering about one-third of the increase, while Delta, United and American Airlines expected second-quarter recapture of about 40% to 50%, indicating that airlines are still working to translate lower fuel into improved margins.
Fares have risen, but they are still catching up
From January through May, jet fuel prices rose more than three times as fast as airfares, so fare increases have not fully matched the earlier fuel surge. Raymond James data showed average domestic fares booked one week before travel were up 34.1% from a year earlier as of June 8. United CEO Scott Kirby also said the airline is on track to recover 100% of the fuel-cost spike through pricing by the end of the year, reinforcing that pricing power is being used to recoup costs rather than to roll prices back immediately.
Limited capacity growth reduces pressure for a fare war
Conditions for a broad fare war are described as not broadly in place in the US, unlike earlier fuel cycles that often triggered a capacity race. Aircraft delivery delays, tight airport capacity, and weaker low-cost carriers are limiting the risk of significant capacity increases. US domestic airline seats are scheduled to grow only 0.4% year-on-year in the third quarter, down from 4.6% expected before the latest Middle East tensions, which helps airlines maintain current pricing.
Lower fuel can ease demand pressure, but airlines still have limited incentive to discount
Analysts noted that lower gasoline prices could ease consumer pressure over high airfares, but the key constraint is whether airlines can hold price as fuel eases. Even with the expectation that each 5% drop in fuel costs could lift projected earnings per share by 10% to 15% for Delta, Southwest and United and up to 50% for American Airlines, airlines still face the reality that fuel costs remain elevated versus a year ago. With little incentive to cut fares while rebuilding earnings, airlines appear focused on sustaining higher fare levels despite the drop in jet fuel.

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Why do US airlines keep fares high despite lower jet fuel?

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