Airline chiefs meet in Rio amid fuel shock and price test
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RIO DE JANEIRO, June 6 (Reuters) - The annual summit of global airline chief executives kicks off in Rio de Janeiro on Saturday as the industry faces an even tougher test than the recovery from the COVID-19 pandemic, with Iran's war raising fuel costs and affecting airspace movements, while companies seek to mitigate the impact by raising prices and reducing capacity.
The annual meeting of the International Air Transport Association (IATA) will be held from June 6 to 8, at a time when the fuel price shock intersects with another problem that airlines cannot quickly address: a shortage of new aircraft.
Delays in deliveries from Boeing and Airbus have prompted many companies to keep older, less fuel-efficient aircraft in service for longer, raising maintenance and fuel costs in conjunction with rising oil prices.
The association, which represents more than 370 airlines accounting for about 85 percent of global air traffic, had projected record net profits of $41 billion this year before the war began. Executives and industry analysts expect these forecasts to be lowered at the meeting.
A survey conducted by Deloitte of 21 global airline chief executives and published this week showed that volatile fuel prices and inflation top the list of risks in the aviation sector, prompting companies to intensify their focus on cost control and strengthening their financial positions.
Fuel and labor are the two main cost factors facing airlines. Sudden increases in fuel prices are difficult to absorb because a large portion of tickets are sold weeks or months in advance. Longer flights also consume more fuel, reducing the efficiency of aircraft and crews.
The challenge lies in determining the size of the fuel price increase that can be passed on to travelers before the price hikes begin to undermine demand.
However, there are still limits. Raising ticket prices may help companies recoup some of their fuel costs, but it could also discourage budget travelers.
These risks are exacerbated in markets suffering from weak currencies, low consumer spending, or where some airlines lack the ability to set prices enjoyed by major carriers.