00:00Let's speak now to Paul Charles, who's Chief Executive of Travel Consultancy, the PC Agency.
00:05Always great to have you on Global Business Europe, Paul.
00:07So look, Lufthansa cancelling these 20,000 flights.
00:10That kind of line grabs attention, but is it a warning sign that the whole industry has to take note
00:18of,
00:18or is this a very airline-specific problem?
00:22There's no doubt at the moment that the airline industry is in a state of some turmoil in many cases.
00:27If you think about it, just at the end of February, they were looking at simple or relatively simple airspace
00:36closures.
00:36Those airspace closures grew across the Middle East, of course, for the period of the conflict.
00:42Then they saw increases in jet fuel and the wider cost of oil, which they've had to deal with in
00:48many cases,
00:49especially where airlines have not been hedging their fuel or buying fuel well in advance.
00:55And also now they're facing the issue of higher inflation, which is feeding through to their costs.
01:0335% typically of an airline's cost structure is jet fuel.
01:08So if your 35% cost has gone up by 70% in the case of jet fuel,
01:15look at the impact that's having on all airlines across all of their business.
01:19Okay, so if flying is going to become more expensive and maybe even less predictable,
01:24do travellers start changing their behaviour in a lasting or in a meaningful way?
01:29A fewer trips, later booking, shifting where we go altogether?
01:32I think we're seeing already travellers are changing their behaviour.
01:36The uncertainty created by the war is leading some to stay closer to home,
01:41so they're spending more domestically in their own countries or they're choosing to holiday closer to their origin point.
01:50But also you're seeing fewer business travellers, for example, out of the Middle East into other regions,
01:57and therefore business class cabins are less busy.
02:00And so airlines are having to offer really cheap or discounted pricing to attract consumers onto their planes,
02:07especially into business class.
02:08So you're seeing a combination of airlines facing higher costs,
02:13fewer people wanting to travel, especially in premium cabins,
02:17and airlines having to discount in order to attract that traffic back.
02:22It sounds like you're saying there's going to be a bit of a squeeze on long haul,
02:25maybe between Europe and Asia, then it won't become structurally viable.
02:31But who really comes under the most pressure if this conflict drags on?
02:36Is it airlines? Is it airports? Is it tourism economies?
02:40All of these who depend on international visitors?
02:43Well, first of all, all airlines are having to look at their fleets and their planning at the moment.
02:49Every planning team is busy, deep in the charts, looking at where their most profitable routes are
02:55and which are the most unprofitable that they need to cut.
02:58And many airlines, like Lufthansa, are saying, well, we don't need to fly, say, three times a day to Miami.
03:05We'll only fly once a day to Miami.
03:07So that's where you're going to see likely cancellations if jet fuel does run out in the coming weeks.
03:13Then, of course, the airlines themselves are saying, well, how long term is this?
03:20What do we need to fundamentally change in our structure?
03:22And there's been some rumours about some airlines going out of business due to running out of money.
03:28Now, they're denying that.
03:29But the simple truth is that the whole industry is facing a squeeze in the short term.
03:35Having said that, longer term, I'm confident the travel industry is very resilient
03:40and it will bounce back very quickly when this conflict is over.
03:44So we could have a very strong second half of 2026.
03:48But maybe consolidation is on the way for the airlines.
03:51Paul Charles, thank you very much.
03:52Paul Charles of the PC Agency.
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