[Source: Reuters]
Global airline chiefs open their annual summit in Rio de Janeiro on Saturday facing a sharper test of the industry’s post-pandemic recovery, as the Iran war drives up fuel costs and disrupts airspace while carriers try to cushion the blow with higher fares and tighter capacity.
The June 6-8 annual meeting of the International Air Transport Association (IATA) comes as that fuel shock collides with another problem airlines cannot quickly fix: a shortage of new aircraft.
Boeing (BA.N), opens new tab and Airbus (AIR.PA), opens new tab delivery delays have forced many carriers to keep older, less fuel-efficient jets in service for longer, raising maintenance and fuel bills just as oil prices have climbed.
IATA, which represents more than 370 airlines accounting for about 85% of global air traffic, had forecast a record $41 billion in net profit this year for the industry before the war. Industry executives and analysts expect that outlook to be lowered at the meeting.
A Deloitte survey of 21 global airline CEOs published this week found that fuel price volatility and inflation sit at the top of the industry’s risk agenda, pushing carriers to focus more heavily on cost control and financial health.
“Together, they’ve turned what was supposed to be a record year into a fight for margin,” the survey said.
Brazilian airline Azul (AZUL3.SA), opens new tab is planning to trim more flights to meet demand due to higher jet fuel prices, CEO John Rodgerson said.
Nikhil Ravishankar, CEO of Air New Zealand, said airlines can only raise ticket prices so much to offset higher fuel costs.
“The market will respond and demand will soften and then you fly less,” he said in an interview.
Airlines have two primary costs: fuel and labor. Sudden increases in fuel are hard to absorb because many tickets are sold weeks or months before travel. Longer routes also burn more fuel and make aircraft and crews less efficient.
The challenge is how much of the latest fuel hit can be passed on to travelers before higher fares start to weaken demand.
