Airlines forecast higher fares after energy price spike

9:51 am Wednesday, April 06th, 2022

By Tim Hepher

PARIS (Reuters) -Airlines will pass on rising oil prices to passengers through higher fares relatively quickly, but the spike in energy costs will worsen the industry’s overall outlook in 2022, the head of the International Air Transport Association said on Wednesday.

Speaking after JetBlue launched a counter-bid for U.S. budget carrier Spirit Airlines, Director General Willie Walsh also said he saw further scope for consolidation among airlines in the United States.

“It clearly took the market by surprise,” Walsh told a regular industry news briefing.

“It is evidence that the financial strength of U.S. airlines does stand out from the rest of the world,” he said, adding that consumers had benefited from major investments in new products.

IATA said global passenger traffic rebounded in February as the impact of the Omicron variant retreated outside Asia. The war in Ukraine has yet to feed through into monthly data.

In February, passenger traffic stood at 54.5% of levels seen in the same month of 2019, up from 50.6% in January but below the 55.1% seen in December. Cargo volumes were at 111.9%.

Airlines are grappling with a rise in oil prices which accelerated after Russia’s invasion of Ukraine, a move Moscow describes as a “special military operation”.

The rise has worsened an outlook already expected to include an industry-wide loss in 2022, although some airlines will make a profit as the world stages an uneven recovery, Walsh said.

In the past, the rule of thumb was that oil prices would take six months to feed through to airfares, he added.

But that could happen more quickly because of the market’s dramatic volatility as well as lower-than-usual levels of forward bookings already in the system following the pandemic.

Walsh also said airlines and airports were moving to tackle staff shortages after a spike in demand, but some factors were outside their control.

Thousands of holidaymakers have seen getaways disrupted or cancelled because airlines and airports do not have enough staff to meet the recovery in demand as pandemic restrictions are eased in Europe.

“The challenge the industry faces is bringing back front- line staff where they require background security checks,” Walsh said, adding that a process which used to take five to six weeks is taking “much longer now”.

(Reporting by Tim Hepher; Editing by Mark Potter, David Evans and Alexander Smith)