Airlines under pressure to pass on costs as fuel prices surge
The soaring price of fuel threatens the airline industry’s recovery just as passengers are returning to the skies. As crude prices remain elevated, airline bosses face a critical calculation: how much of their fuel bill can they pass on to customers without leaving their planes empty? The heads of Europe’s biggest airlines met in person for the first time in two years this week at a conference in Brussels, each reporting a burst of demand as pandemic-related travel restrictions are rolled back. Lufthansa’s CE Carsten Spohr said his airline would fly more short-haul routes this summer than in 2019, while British Airways owner IAG plans to return to pre-pandemic levels of transatlantic flying by the summer. Leading the pack, Ryanair expects to fly 165mn passengers in this financial year, which began in April, up on 150mn before the pandemic. “There’s big pent-up demand for the summer, there is just no doubt about that,” said easyJet’s CE Johan Lundgren. But the price of fuel — which can make up as much as a third of an airline’s costs — threatens the profitability of this rapid recovery. Jet fuel has risen by a third to more than $150 per barrel since Russia’s invasion of Ukraine plunged commodity markets into turmoil. The rise to 14-year highs has outpaced even Brent crude, as airlines have been forced to pay a premium for the refined product. US airlines have already indicated they will pass on the fuel costs to consumers, betting that passenger demand is robust enough to withstand it. Delta, for example, has said it needs to recoup between $15 and $20 each way on an average ticket value of about $200 to offset higher fuel costs. Some airlines have introduced fuel surcharges, which are treated like government taxes that make new tickets more expensive and appear as extra charges when redeeming air miles. Air France and KLM have said long-haul flights will get more expensive. A KLM return flight from Amsterdam to New York will rise by E40 in economy class and E100 in business. Spohr of Lufthansa was unequivocal that airlines needed to “make sure our business model still works” in an environment that also included higher airport and staff costs. “Inflation eventually hits every industry,” he said.<br/>
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Airlines under pressure to pass on costs as fuel prices surge
The soaring price of fuel threatens the airline industry’s recovery just as passengers are returning to the skies. As crude prices remain elevated, airline bosses face a critical calculation: how much of their fuel bill can they pass on to customers without leaving their planes empty? The heads of Europe’s biggest airlines met in person for the first time in two years this week at a conference in Brussels, each reporting a burst of demand as pandemic-related travel restrictions are rolled back. Lufthansa’s CE Carsten Spohr said his airline would fly more short-haul routes this summer than in 2019, while British Airways owner IAG plans to return to pre-pandemic levels of transatlantic flying by the summer. Leading the pack, Ryanair expects to fly 165mn passengers in this financial year, which began in April, up on 150mn before the pandemic. “There’s big pent-up demand for the summer, there is just no doubt about that,” said easyJet’s CE Johan Lundgren. But the price of fuel — which can make up as much as a third of an airline’s costs — threatens the profitability of this rapid recovery. Jet fuel has risen by a third to more than $150 per barrel since Russia’s invasion of Ukraine plunged commodity markets into turmoil. The rise to 14-year highs has outpaced even Brent crude, as airlines have been forced to pay a premium for the refined product. US airlines have already indicated they will pass on the fuel costs to consumers, betting that passenger demand is robust enough to withstand it. Delta, for example, has said it needs to recoup between $15 and $20 each way on an average ticket value of about $200 to offset higher fuel costs. Some airlines have introduced fuel surcharges, which are treated like government taxes that make new tickets more expensive and appear as extra charges when redeeming air miles. Air France and KLM have said long-haul flights will get more expensive. A KLM return flight from Amsterdam to New York will rise by E40 in economy class and E100 in business. Spohr of Lufthansa was unequivocal that airlines needed to “make sure our business model still works” in an environment that also included higher airport and staff costs. “Inflation eventually hits every industry,” he said.<br/>
