Global Airlines Hike Fares, Cut Routes As Fuel Costs Balloon
March 17 (Reuters) – Global airlines sounded the alarm on Tuesday over rising jet fuel prices triggered by the U.S.-Israeli war against Iran, warning of hundreds of millions in extra costs, higher fares and cuts to some routes.
Delta Air Lines Chief Executive Officer Ed Bastian said the dramatic increase in jet fuel prices increased the airline’s costs by up to $400 million in March alone. Speaking at the JP Morgan industry conference, he said the industry was moving rapidly towards covering higher expenses through wage increases.
American Airlines said it expects a $400 million increase in first-quarter expenses due to fuel costs.
Among the first to act, Scandinavia’s largest airline, SAS AB, said it would cut a limited number of flights due to the “drastic and sudden increase” in fuel prices.
“The entire European aviation system is now feeling the pressure of a sudden fuel shock,” he said in an email.
BIG CHALLENGE
The war, now in its third week, has thrown global aviation into turmoil, with flights being cancelled, rescheduled or rerouted as much of Middle Eastern airspace remains closed due to fears of missile and drone attacks.
Jet fuel prices have emerged as a major issue, driving up operating costs, with European prices doubling and Asian prices rising almost 80% since the start of US and Israeli attacks on Iran in late February.
Fuel is the industry’s second largest expense after labor, typically accounting for one-fifth to one-quarter of operating costs. US airlines have largely abandoned fuel hedging over the past two decades, and SAS said last year it would not hedge any of its fuel consumption for the next 12 months.
Vietnamese officials have warned the country’s aviation industry to prepare for possible flight disruptions from April after the risk of shortages increased after China and Thailand halted jet fuel exports due to war.
SHOCK WAVES IN THE INDUSTRY
The United Arab Emirates briefly closed its airspace on Tuesday in response to missile and drone threats from Iran; This was the second consecutive day of disruption following a fire caused by a drone near Dubai airport on Monday.
Approximately 86,000 passengers traveling at Frankfurt Airport, one of the largest airports in Europe, were affected by cancellations in the first two weeks of the war. Only a third of weekly connections between the airport and the Middle East are operating, CEO Stefan Schulte said on Tuesday.
Warnings of rising costs show how the shockwaves of the conflict are spreading far beyond the Middle East as airlines face their biggest crisis since the Covid-19 pandemic.
Delta’s Bastian said the airline is well positioned to cover fuel costs and could adjust capacity if high prices persist. Still, airlines will need to tread carefully with fare increases at a time when consumer confidence is fragile.
Air France-KLM announced plans last week to increase long-haul ticket prices to offset rising fuel costs.
Some carriers have implemented fuel surcharges, but these result in snow melting.
American Airlines said Tuesday that first-quarter revenue is now expected to rise more than 10%, above its previous forecast of 7% to 10%, as demand beat expectations. But adjusted loss per share will now be toward the lower end of its previous guidance range of 10 cents to 50 cents.
(Reporting by Rajesh Kumar Singh in Chicago, Shivansh Tiwary in Bengaluru and Joanna Plucinska in London. Additional reporting by Enas Alashray and Federico Maccioni in Dubai. Written by Josephine Mason. Edited by Mark Potter)
