Here’s what we know. Air-passage demand is rising, along with airlines’ costs as $100-a-barrel oil erodes bottom lines (U.S. crude hit $112.05 yesterday). As a result, air fares continue their upward journey. Leisure travel this summer will almost certainly be affected, but at what point, if any, will business voyagers start to baulk at fare increases?
This week and last, U.S. airlines have been releasing their quarterly results. Losses among the larger carriers were substantial, though smaller than expected.
Delta, whose quarterly loss netted at $318 million, is adjusting fares “with a goal of recapturing the full cost of fuel on every flight, every day,” as the company’s CFO told Reuters. On a call to analysts a few days later, Delta Chief Executive Richard Anderson explained that, “Where we cannot get the necessary revenue increases to offset the increased cost of operating the flights, we will remove capacity.”
It was a similar story with American Airlines parent AMR, whose first-quarter net loss narrowed to $436 million from $505 million a year earlier. The corporation said it planned to trim fourth-quarter system capacity by 1 percent.
A lot has happened since March 2, when IATA director-general Giovanni Bisignani, commenting on global airlines’ oil-hit net profit margins, referred to the estimated 1.4 percent 2011 figure as more worthy of a charity than an industry. Even that measly increment, Bisignani added on March 29, is “under considerable pressure.”
As we reported on the 2nd, IATA’s forecasts assume an average oil price of $96 per barrel for Brent crude this year. Every $1 increase in the price of a barrel, said Bisignani, adds $1.6 billion in costs to airlines, which are estimated to have hedged 50 percent of their fuel purchases this year.