Brace for impact; the aviation sector is cruising into the busy summer season with fuel prices soaring at a higher altitude. Only those airline companies that can find equilibrium between the rising expenses and increased demand, without attracting passenger loathing, will be able to land safely at the end of the rugged ride.
Jet fuel is around 56% more expensive this year compared to 2017, as per International Air Transport Association, with around 15% of the price rise occurring this year. With the busiest season for the sector – June to August period – just around the corner, airline companies have to make a lot of adjustments to ensure profitability.
So far, the companies have been able to offset much of these expenses by the increased travel demand. Data from the US Department of Transportation reveals that the number of air passengers touched a record 965 million in 2017. However, the summer will prove to be crucial as the companies could get caught up in between cost optimization requirements and market share retention.
Three areas that the airline companies could work on to improve their margins are: raising fares, cutting down passenger perks and canceling routes that are not profitable. And the airliners are leaving no stone unturned.
Following the footsteps of Delta Air (DAL), rival American Airlines (AAL) announced certain restrictive fares for economy class passengers in Europe. The world’s largest airline is also canceling numerous routes including Chicago-Beijing and some Latin American destinations. Apart from this, American Airlines is also retrofitting extra seats in about 200 planes to pack more passengers in each flight. Leg spaces will not be compromised for the extra seats, but the same may not apply for the size of latrines!
With the busiest season for the sector – June to August period – just around the corner, airline companies have to make a lot of adjustments to ensure profitability.
And yet, all these tricks won’t save the passengers from spending more on higher ticket prices. Last month, after cutting down its profit forecasts, CEO of American Airlines Doug Parker had stated that the higher fuel prices would force them to increase fares.
Meanwhile, European counterpart Ryanair on Monday stated that it expects the profits for the year 2019 to dip about 14% for the first time in five years, driven by the compounded effect of higher fuel price and labor costs. The Irish airline had also predicted the possibility of some airliners failures caused by these headwinds.
The NYSE Arca Airline Index has declined around 9% so far this year, compared to a 1.5% increase by S&P 500. Airline companies have a balancing act to play up ahead.