• Thu. Aug 4th, 2022

Is the airline industry on the right flight?

ByKimberly A. Brochu

Jul 26, 2022

By Rajesh Mehta & Prerna Mishra

What do you usually need when traveling by plane in 2022? A normal answer would be a passport, boarding pass and maybe a pair of sunglasses would be nice. But wait, you forgot one thing, camping gear!

The COVID-19 crisis has disrupted the entire global aviation industry. But even after the crisis, the industry is struggling to get back on its feet. What had been billed as a summer of “Revenge Travel” turned into travel hell. One in five aircraft arrived after schedule through the 2022 date. The main issue appears to be the mismatch between traveler demand, which has rebounded unexpectedly and quickly, and staffing levels, which have not have not increased. Although industry figures are upbeat, the cracks are already holding back the sector’s fragile recovery.

It’s worth asking here, will it get worse before it gets better? First we need to understand why passenger airlines are struggling to stay profitable. There are several possible reasons.

First, the Russian-Ukrainian war. The industry has been rocked by retaliatory sanctions and airline restrictions, which have resulted in flight cancellations and reroutings resulting in higher airfare prices, higher fuel costs and fuel supply issues. titanium.

Second, a rapid spike in ATF prices. Since the start of 2022, the price of jet fuel has increased by 90% and costs about 120% more, on average, than in 2021. This price increase is a challenge for airlines, because fuel is the cost of largest operation — 25-40% of total costs. There is pent-up demand for summer vacations both at home and abroad, and the ATF price hike will directly affect airfares in all markets. There has been a 30-40% increase in airfares over the past two months. And this rise in ATF prices is a major challenge especially for the Indian airline industry due to the weakening of the Rupee as major cost items such as fuel, maintenance, rentals and Review costs are all denominated in dollars. Unfortunately, the problem does not end there. The aviation, travel and hospitality industries are all interconnected. Therefore, rising airfares will also hurt travel agencies like MakeMyTrip or Yatra.com, as bookings will now slow down.

Third, labor shortages. Which was a long-standing problem before the pandemic, but the pandemic has made it wax.

Last but not least, the bad weather. Europe’s all-time hottest temperature – 41C – causing heatwaves and forest fires, CO2 emissions, snowfall and other climate-related issues, compounded the effect of labor shortages which led to long queues, lost luggage, delays or canceled flights, leading people to wonder if they should have brought camping gear while waiting for the plane to board. Delta, for example, canceled about 3% of its flights in the past month, second only to American Airlines, which canceled 5% according to FlightAware. Due to the poor operating environment, London’s Heathrow Airport has also decided to limit the number of passengers cycling through the airport until mid-September.

But the situation seems more serious for the Indian airline industry. India’s airline industry is walking a tightrope, even before the pandemic with the pandemic the sector was crippled. The nascent recovery of domestic traffic is threatened by continued weak demand, high fuel costs, rupee depreciation, labor shortages, smoking cabins, engine failures, engine fights. birds, “work stoppages”, massive debt and so on!

There have been more than 20 incidents of technical problems and emergency landings by various carriers in just one month. And the point worth highlighting is that out of 20, more than 10 incidents happened with SpiceJet alone, which was followed by Indigo which reported at least 5 incidents. DGCA – the scrutineer of the Indian airline industry, has issued a warning to Spicejet saying they have failed to establish their services as safe, efficient and reliable. It also grounded 2 airlines, but what we have to ask here is if that’s all the DGCA should be doing?

The arrival of Akasa Air brings some relief to air travelers as prices have already dropped on the routes on which it will begin operating. India has also established several ambitious plans both at home and abroad. It plans to add 100 new airports, increasing airport Capex intensity by 51% in FY23-27, studies show India’s domestic traffic will grow 5x in next 2 decades steal. This all sounds good on paper, but what about the implementation? India has the lowest air fares and the highest fuel prices in the world, which is perfect for airlines to be in the red. It is high time for India to lay down its foundations.

Despite the promising signs – passenger volumes will “rebound strongly” due to strong pent-up demand for commercial flights, in the leisure, long-haul and business sectors – the airline industry could struggle take advantage of the impending surge in travel demand. From airlines and car rental companies to hotels and airport restaurants, the entire travel supply chain is on the brink of bleeding. Misfortune spreads quickly, a negative experience can also lead customers to seek alternatives including nearby drives. The rapid spread of Monkeypox or a new wave of COVID could also pose serious threats in the future.

Looking back, the numbers might not look promising for airlines in the short term, but ultimately there is hope to hold on.

(Rajesh Mehta is a leading international consultant in the field of market entry, innovation and public policy and Prerna Mishra is a researcher with interests in economics, finance, entrepreneurship and everything else. The opinions expressed are personal and do not reflect the official position or policy of FinancialExpress.com.)