00:00Let's bring in John Strickland, an independent aviation business strategist.
00:03Always great to have you on the programme.
00:06Now, John, airlines have been here before with fuel shocks.
00:10This feels different.
00:11I mean, what's the first thing that CEOs are quietly preparing for right now?
00:16Well, of course, the picture varies by individual airline.
00:20We have some airlines who are substantially hedged,
00:23particularly those in Europe, the major network groups such as IAG,
00:28the parents of British Airways and Iberia, Air France, KLM and Lufthansa
00:31are all substantially hedged for some time ahead, maybe in different ways.
00:37And so the exposure does vary.
00:39Low-cost airlines in Europe, like Ryanair, also massively hedged.
00:42And as we just heard there from your markets reporter,
00:45those in the U.S. like United are not hedged.
00:47So the response is different.
00:49We've seen the U.S. carriers putting fair increases in immediately in the region of 10%.
00:55You know, Scott Kirby from the United has talked about maybe average prices going up 20%
01:00if this consistent oil price hike continues.
01:05European carriers are not saying that at the present time.
01:08But as you said, it's such an important part of airline costs.
01:11It cannot be ignored.
01:13Airlines cannot avoid but to use jet fuel.
01:16You also said we've had this experience before,
01:18and I think that's relevant because airlines have, if not become battle-hardened,
01:23they are more aware of their need to deal with fuel price shocks.
01:27And they've managed other costs over recent years far more effectively
01:30and introduced more fuel-efficient aircraft.
01:33So it's by no means that the issue has gone away,
01:36but they are, generally speaking, better protected than previously.
01:39It's interesting you talk about how quickly some of the airlines have raised ticket prices,
01:44those high fuel prices feeding in so fast.
01:47I thought much of it would already have been locked in for summer.
01:51It certainly has, and that's why we're not seeing all airlines responding in the same way.
01:55U.S. carriers just philosophically have argued for a decade or so it's not worth hedging.
02:00But in the long term, they don't gain.
02:02They've acknowledged equally that it would have been better if they had been hedged now.
02:05But they've had to stem that loss of blood, so to speak,
02:10in the increased cost of fuel immediately, in their case,
02:13by putting ticket price increases in now.
02:16European carriers generally have not.
02:18But equally, there are others who are exposed and are not just looking at the ticket prices.
02:22They're shedding capacity, which is now much more marginal, if not loss-making to operate.
02:28So, again, United said that their sum are flying by about 5%.
02:32Same in the Pacific, I saw another example out in the Philippines is cutting a certain amount of flying.
02:38Scandinavian airlines, largely unhedged in Europe, cancelled around about 1,000 flights.
02:43So the responses are varied.
02:45But as I said, some of the European groups are pretty well protected for the coming months.
02:50I did want to ask you about that.
02:51You mentioned some of those who are scaling back routes.
02:54Is this giving some of them an excuse to do just that, to scale back those routes in capacity
02:59that they were maybe already struggling to make profitable?
03:03I think, really, it is the fuel that's driving it,
03:06because we're heading towards the northern hemisphere summer season.
03:12Airlines, again, as a general rule, have become more adept at managing capacity.
03:17It tends to be at a lower level in winter anyway, but managing capacity in a way that allows them
03:22to fly occupancy levels of certainly 80% plus, 90% plus for many low-cost carriers.
03:29They don't really want to shed capacity and leave holes in their schedule,
03:32which itself can become a self-fulfilling negative.
03:35That puts off, say, particularly business travelers who want choice and flexibility as to when they travel.
03:40So, I think it really is a genuine need to shed capacity,
03:45which is causing direct red ink to appear at present time.
03:49So, let's talk about those travelers, business travelers and leisure travelers
03:52who are watching all of this unfold.
03:55What does it all mean, like, over the next six months?
03:57Are we going to be expecting longer journeys, higher fares, higher fares and longer,
04:03I mean, fewer choices, maybe, or all of it?
04:07Yes, certainly a combination of those factors.
04:09It would depend where people are flying, when they're flying.
04:12As I mentioned, we're coming up into the summer season.
04:15We're well in the middle of the typical booking cycle.
04:17People have maybe from Christmas onwards started making bookings for summer travels.
04:22That's not finished, but up until this conflict,
04:24airlines were generally reporting good bookings for the summer.
04:27That would look at markets, for example, to the south of Europe from the north
04:31in case of the European short haul carriers.
04:34Certainly people traveling to the Middle East and Asia who would ordinarily have gone
04:37on Gulf carriers in the coming months.
04:40And the transatlantic, the north atlantic market, the summer season is the season for that market.
04:46And bookings have been good.
04:48They were already areas of softness with European travelers being more reticent
04:54on a country-by-country basis to go to the U.S.
04:57really as a result of a bit of a political distaste for going to the States.
05:02American travelers are holding up more robustly.
05:05And airlines have talked positively about premium travel,
05:08not necessarily business travel, but leisure travelers too,
05:11buying tickets in the premium cabins.
05:13That's been pretty strong.
05:14We even heard yesterday United investing in more premium seats.
05:18But it's all still very murky at the present time.
05:22Airlines have sophisticated booking systems that influence how they sell,
05:27data about how bookings are trending.
05:29They will be looking at that in microcosmic detail right now,
05:32ready to move and change as quickly as necessary in some ways we've seen.
05:37That could also include moving capacity to more constrained areas.
05:41We've seen some of the European carriers adding some extra flex to Asia.
05:45John Strickland, always great to speak to you.
05:47Thank you so much.
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