International airline lobby IATA says while the recent spike in oil prices was a sign of a rebounding global economy, which is good for business, coming from deep losses and encumbered by debt, airlines are not in a position to absorb the increase.
Airlines owe $340 million according to Bloomberg. Analysts at McKinsey say combined with the costs of retraining pilots and recertifying aircraft that have been parked for prolonged periods, industry debt could reach $870 billion to $1.1 trillion by 2024.
Fuel constitutes between 25 to 30 percent of the operating costs of an airline. Meanwhile airports in Europe, facing their own financial crisis because of the downturn, are increasing the fees they charge airlines, adding to operating costs for airlines.
Speaking during a briefing on Covid-19 impacts on November 3, IATA Director General Willie Walsh said there was minimal risk that rising oil prices would stall the ongoing recovery or air travel, “but the industry has no choice but to reflect the rising costs in the fares.”
The price of Brent crude now averages $80 per barrel. Airlines however, have breathing space because of low exposure to the costs of fuel hedging. But rising costs could have an impact on the rate at which carriers bring aircraft back into service.
Walsh said the recovery will continue in tandem with the rate at which travel restrictions are relaxed.
The industry saw a modest rebound with traffic in September improving 3percent over August. Relative to 2019, composite demand for air travel was down 53.4 percent in September 2021, a slight improvement on the -56percent posted during August.
That change was mainly attributable to continuing recovery in Chinese and North American domestic markets. International demand however, continues to weigh down the recovery, at 69.2 percent below September 2019.
African traffic bettered the international average but was still 62.2 percent below the comparable period for September 2019. It also reflected a monthly slippage of nearly 4percent on the the 58.5 percent recorded in August 2021. Deployed airline seats were down 49.3 percent while the average passenger load factor for the region declined 18.4 percentage points to 53.7 percent.
“September’s performance is a positive development but recovery in international traffic remains stalled amid continuing border closures and quarantine mandates. The recent US policy change to reopen travel from 33 markets for fully vaccinated foreigners from 8 November is a welcome, if long overdue, development. Along with recent re-openings in other key markets like Australia, Argentina, Thailand, and Singapore this should give a boost to the large-scale restoration of the freedom to travel,” Walsh said.
Walsh said in some markets, the industry faces the additional challenge of a shortage of qualified labour. While that had been predicted to happen decades ago without actually happening, it was now materialising, because many of the people who were laid off at the peak of pandemic effects, would not return to the industry.
Air cargo meanwhile maintained a positive trend growing 9.1 percent above pre-pandemic levels in September. Growth is supported by supply chain disruptions which has driven manufacturers to use airfreight to recover lost time.
Disruptions to ports have also narrowed the cost advantage between air and sea freight with shipping by air now costing only three times more, compared to precrisis when it was 12.5 times more expensive than sea shipping.