Global airlines expect airfares to rise faster as fuel prices surge

Airlines and airports are struggling with staff shortages after an increased demand for travel, Iata says

Willie Walsh, director general of the International Air Transport Association, says the financial outlook for the airline industry in 2022 is likely to worsen. Reuters
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Global airlines will pass on the cost of rising fuel prices to passengers quicker than expected, leading to higher airfares after the recent surge in oil prices, the head of the International Air Transport Association said.

The outlook for the airline industry's overall financial performance in 2022 is likely to worsen due to the challenge of higher oil prices, Willie Walsh, Iata's director general, said at a press briefing on Wednesday.

"The high oil price is going to find its way into higher ticket prices ... it's inevitable, airlines are not in a position to absorb the significant increase in fuel bills that they're seeing at the moment," he said.

"Typically, we would have said that an increase in oil price takes about six months to find its way through into ticket pricing, but given the very rapid increase that we have seen, it's likely to be reflected in ticket pricing a lot earlier than we would have traditionally seen."

Fuel represents most airlines' single biggest cost, at about 27 per cent during normal operating periods. Jet fuel prices are up 77 per cent so far in 2022, compared to 2021, even more than oil, Iata data showed.

The recent oil price volatility is being led by Russia's military offensive in Ukraine, with crude prices surging to almost $140 a barrel in March before sliding down again.

Brent, the global benchmark for two thirds of the world's oil, was trading 1.03 per cent higher, at $102.11 per barrel at 5.32pm UAE time on Thursday, while West Texas Intermediate, the gauge that tracks US crude, was up 1.26 per cent at $97.44 a barrel.

The Russia-Ukraine conflict is not having a huge direct effect on airlines, with the Covid-19 pandemic and related restrictions still the dominant driver of developments in the industry, Marie Thomsen, Iata's chief executive, said.

The fall-out from the conflict is seen in the affected countries at war and their neighbours, a region that is not a major part of the global aviation system, she said.

One effect of the war is the diversion of cargo to avoid banned airspace, which "seems to be benefiting the Middle East", she said.

Having rebuilt their capacity quickly after a rebound from the pandemic, Middle East airlines such as Emirates and Qatar Airways are in a "good position" to take advantage of their geographical location for opportunities in cargo and passenger transport, Mr Walsh said.

Quote
The high oil price is going to find its way into higher ticket prices ... it's inevitable, airlines are not in a position to absorb the significant increase in fuel bills that they're seeing at the moment
Willie Walsh, director general Iata

However, one challenge that airlines and airports around the world are currently tackling is staff shortages after an increase in travel demand, the Iata chief said.

Travellers are experiencing flight restrictions or cancellations as airports struggle to bring back staff after a wave of lay-offs during the pandemic.

An issue with getting people back into the workforce is that they have to undergo very stringent background security checks, which are now taking more time than usual, Mr Walsh said.

"It's great to see passenger numbers increasing and flights returning to where we were in 2019, but we're in for a short period of disruptions at airports and airlines as they try to ramp up their staffing to match the increase in demand we're witnessing at the moment," he said.

The labour shortage issues are disappointing but should ease within the next few weeks and return to a more normal operating environment into the summer season, Mr Walsh said.

Passenger and cargo traffic

Air passenger traffic showed a strong rebound in February 2022 compared with the previous month, as the Omicron-related effect receded outside Asia, Iata said in its monthly report.

Passenger traffic in February grew nearly 116 per cent annually and was up almost 55 per cent compared with February 2019 levels, according to Iata's Air Passenger Market Analysis report. The conflict in Ukraine, which began on February 24, had only a limited effect on air travel demand during the month, it said.

"The war in Ukraine and its ramifications, the spread of Omicron in China, and elevated global inflation will all put downward pressures" on passenger volumes in March and beyond, according to the report.

However, tickets sold in recent weeks for future travel point to ongoing resilience, Iata said.

Air cargo markets also recorded increased demand in February despite a challenging operating backdrop, Iata said.

Global air cargo volumes in February were up 2.9 per cent annually and 11.9 per cent above their February 2019 levels.

"Although the conflict in Ukraine has impacted air cargo outcomes, it was partly offset by a confluence of temporary factors that include Chinese New Year and reduced disruptions from Omicron outside Asia," Iata said in its Air Cargo Market Analysis report.

Updated: April 07, 2022, 3:16 PM
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