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Pilots have checklists for what to do when something changes in flight. Their ultimate bosses — chief executives of airlines — do not have that same comfort. Following the closure of the Strait of Hormuz, several major US and European carriers have raised ticket prices but made only small cuts to capacity, suggesting they see the Iran conflict and worries over the availability and affordability of jet fuel as a mere detour, with the destination unchanged. That would be an optimistic read.
While the announced reductions are generally contained, bosses have taken different tacks, ranging from United Airlines’ Scott Kirby, who smoothed a 5 percentage point capacity cut over the rest of the year, to American Airlines’ mere one point cut in planned capacity for the months to June. That includes the impact of a federal cap on flights using Chicago’s O’Hare which affects all carriers, as well as cuts to several Middle East flights where demand has probably plummeted anyway.
Even in Europe, where jet fuel shortages are a bigger fear, Lufthansa’s cutting of 20,000 short-haul flights represents just 1 per cent of its annual activity. On Thursday, Air France-KLM lopped a single point off its full-year capacity growth, now between 2 and 4 per cent, from 3 to 5 per cent previously.
It helps that the airlines were starting from a benign financial environment and not that many seats to spare. The year began with gradually slowing inflation and lower interest rates. In terms of new planes, additions were steady but not dramatic enough to facilitate a margin-crunching price war — a particular risk among sharp-elbowed European carriers.
What the airlines don’t seem to be baking in is slowing demand. So far, US carriers say they haven’t seen signs of that but government data suggests a drop-off has begun. This month, passengers dipped below levels seen at this point last year and the year before, although they may have also been holding off booking to avoid the massive check-in queues resulting from US security staffing issues.
Still, that doesn’t bode well for the summer ahead. In Europe, there was already a trend towards ever-later booking, even before holidaymakers began worrying about whether their plane can get fuel. EasyJet, which has a big holiday-booking business, and travel operator Tui have both warned they’re seeing softer demand for the coming months.
Whether fuel shortage fears are realised or not, the impact on airlines from rising energy costs is likely to increase, be it from sharper capacity cuts or fewer bookings as flyers get squeezed by inflation. That can’t have escaped the airline chieftains. Perhaps they feel that they, like their pilots, need to sound reassuring when events aren’t going to plan.
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