Airlines buckle under fuel hike, travel restrictions, others
International airlines are in dire straits over the spike in the cost of aviation fuel and spiral effect on the cost of operations. Amid the upswing in passenger traffic across the regions, operators are contemplating a rise in airfares to cover the cost, though at the risk of eroding gains in travel demands.
Already, aviation fuel is at its highest price since 2014 due to the elevated price of oil, with the U.S. jet fuel benchmark at $2.27 a gallon last week, a 25 per cent increase from three months ago.
Locally, the price of aviation fuel in Nigeria has been on the rise since January. The commodity price had spiked from N200/litre in January to about N315/litre, raising concerns for airline operators.
Indeed, airlines and travel agencies are forecasting a significant increase in the number of travellers over the Christmas period, as lockdowns continue to ease, and several international travel routes reopen. The worry is the cost of fuel, travel restrictions and even depleted workforce on some of the airlines.
With most airlines no longer receiving government financial support, which had helped many firms keep afloat during the worst period of the pandemic, companies are having to employ and pay more pilots, flight attendants, travel agents, and airport staff to meet the growing demand with their own finances, betting on the return.
For flights booked before the price of jet fuel increased so much, it seems likely that airlines will take a loss, increasing the price of future flights to make back some of this money.
The winter rush is bittersweet, as airlines must contend with higher flight and employment costs, betting on the stability of the international COVID-19 situation – where lockdowns are minimal and travel routes remain open – to reap the rewards.
Southwest Airlines in the United States has responded to the increase in demand and difficulties in staffing by offering flight attendants, pilots, and other operations staff up to 120,000 rapid reward points, at a value of over $1,400, to work 36 days over the next two busy festive months.
This follows an increase in the number of airline staff calling in sick. Southwest is trying to avoid a repeat of its Columbus Day weekend failings when the airline was forced to cancel over 2,000 flights, at an estimated cost of $75 million.
In Europe, flight reservations are also on the up. Spain’s flight numbers are already edging above pre-pandemic levels. Spain’s ALA airline association president, Javier Gandara, stated last month, “There are currently 1.9 per cent more flights programmed for this winter period – roughly from November to March – compared to 2019.” Adding, “for the Canary and Balearic Islands, planned flights are over 10 per cent higher than in 2019.”
AirFrance-KLM is expecting a 75 per cent increase in passengers over the festive period. Reservation figures went up after the U.S. announcement that it would be permitting travel from 26 Schengen Area countries, with announcements of border openings in Canada and Singapore supporting the trend.
Airlines are now hedging the price of fuel, essentially buying it forward, to protect themselves from rising fuel prices, with experts predicting that the Brent oil benchmark could reach $90 per barrel before the end of the year, and continuing to rise. Some European budget airlines are relying on this tactic to cut costs, with 80 percent of Ryanair’s fuel requirements already hedged for 2022.
But a higher fuel cost, meaning increased flight prices, does not appear to be dampening consumer demand for winter travel. In fact, the forecast this month from the World Tourist and Travel Council (WTTC) is predicting that U.S. travel in 2022 could surpass that of 2019 pre-pandemic levels. The WTTC also expects travel expenditure to increase over the next year. This is expected to have a knock-on effect on employment, with more job opportunities opening up.