Issue No. 855
No Trouble at the Pump — Yet
U.S. Airlines Take Oil Price Hikes in Stride
Pushing Back: Inside the Issue
A couple of decades ago, $100-per-barrel oil was a doomsday scenario for the airline industry. Today, American Airlines CEO Doug Parker is confident that the industry can make money with oil at or above that price. That's a good thing, because that's where oil has been since Russia invaded Ukraine. After surging in the immediate aftermath of the invasion, oil prices have fallen below the $100 threshold, although volatility remains.
U.S. airline executives at an industry conference last week weren't too bothered about the price of oil, despite predictions to the contrary. Some, like Alaska Airlines and Southwest Airlines, are hedged, which buys them time before they have to make capacity and pricing decisions. But even the majority of airlines that aren't hedged say they'll be fine. In fact, most airlines think they only need to raise fares modestly to recoup the higher fuel bills. This is good news for airlines. And good news for travelers. Summer demand is still expected to be torrid.
But the usual caveats apply. The pandemic continues to rage, with infection rates in parts of Asia higher than they have ever been since Covid-19 unleashed itself on the world. The Ukraine war may still cause a surge in energy prices, which would dent the world's economic recovery. Inflation is a worry. Supply chains face increasing disruption. The labor market, particularly for pilots and licensed maintenance technicians, is tight. And although most now think it won't, the Ukraine war could escalate.
All or some of these things could happen or get worse. But for now, airline executives are still casting their eyes toward the summer, and they like what they see.
The Airline Weekly Lounge Podcast
Russia’s invasion of Ukraine initially sent oil markets into a spiral. Prices may have come back down to earth, but oil remains volatile. Yet, U.S. airline executives aren’t terribly concerned. More pressing is how to hire enough pilots to operate flights. Edward “Ned” Russell and Madhu Unnikrishnan report on what they learned at a recent industry conference and discuss which airlines plan to add or trim capacity this summer. To listen to the 'Lounge archive, visit Airline Weekly online.