Strong dollar hits airlines as costs surge

The strength of the US dollar is putting new pressure on airlines’ fragile balance sheets, driving up the cost of everything from the fuel used to power their planes to the aircraft themselves. A wave of dollar strength has sent currencies from the pound to the yen tumbling this year, and the US dollar index, which tracks the currency against its major peers, has recently traded close to 20-year highs. This represents a particular challenge for international airlines recovering from the pandemic, as they raise revenue in local currencies but pay much of their costs in dollars. “A strong dollar is a real challenge for the airline industry generally, as if we didn’t have enough challenges already, with Covid, Ukraine and the price of oil,” said Ryanair CE Michael O’Leary. It means airline passengers may be hit further as the carriers try to pass on increasing costs to travellers through ticket prices, which have already soared after two years of border restrictions. Flights for the autumn half-term break in the UK next month are 42% more expensive than those in 2019, according to figures from consumer group Which? Although most airlines have currency hedges in place helping to offset the worst of the impact, the soaring costs leave many airline bosses with difficult calculations on how many planes to fly this winter as the global industry reels from vast losses. It is forecast to lose $10b this year, bringing net losses over the past three years to $190b, says the IATA, the airline industry body. Only US airlines are forecast to turn a profit this year as a region. “The strong dollar will definitely have an effect on the profitability of airlines . . . I think it is going to be a tough winter, for sure,” said David Yu, an aviation financing adviser and professor of finance at New York University Shanghai.<br/>