Airline industry hit by biggest crisis since pandemic

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The airline industry is in the grip of its worst crisis since the pandemic, as the Middle East war has grounded flights, wiped more than $50bn off the value of the world’s biggest carriers and even raised the spectre of fuel shortages.

As the conflict headed into a fourth week, executives sounded the alarm on its repercussions for an industry exposed to a prolonged increase in oil prices, disruption to the Gulf’s hub airports and a potential hit to global demand.

Passengers on routes far beyond the Gulf are set to face a steep increase in ticket prices in coming months as airlines attempt to shield their profits. Jet fuel, which accounts for a third of airlines’ costs, has doubled since the US and Israel launched their attacks on Iran last month and is still rising.

Although many carriers are hedged against swings in oil prices, executives warned that the precipitous rise in the cost of jet fuel this month would force them to lift fares.         

“Fuel spiked quite heavily after the Ukraine invasion in 2022 as well, but this has gone further north,” said easyJet chief executive Kenton Jarvis, adding that the conflict marked the severest upheaval for the industry since the pandemic closed the skies in 2020.

In a sign of investors’ alarm, the 20 largest publicly listed airlines have lost about $53bn in market capitalisation since the war began, according to FT calculations. 

Investors have also increased their bets on further declines in share prices, with Wizz Air, a low-cost European carrier, now the most shorted company on the FTSE 100, and easyJet also targeted.  

The crisis has struck following a sustained rebound in demand since the pandemic, with several airlines enjoying a run of record profits. Nevertheless, executives are wary that demand can withstand much higher ticket prices. 

Carsten Spohr, the chief executive of Lufthansa, said he feared higher prices could dent demand over the longer term but insisted that Germany’s largest airline had no choice but to raise fares. 

“Our average profit is about €10 per passenger, there’s no way you can absorb the additional cost,” he said. 

In an indication of how the disruption is ricocheting across the sector, airlines are drawing up contingency plans in the event of a shortage of jet fuel. 

Ben Smith, chief executive of Air France-KLM, said that the carrier was putting plans in place to cope with a squeeze in supplies, including cutting services to parts of Asia.

Executives said that the epicentre of the crisis remained in the Gulf, where the state-backed trio of Emirates, Etihad and Qatar have been forced to dramatically cut back their schedules amid airspace closures and the collapse of the region’s tourism.

“For the guys in the Middle East, this is a big crisis,” said Willie Walsh, head of airlines lobby group Iata and the former boss of BA, adding that it remained dwarfed by the crisis that engulfed the industry during the pandemic.  

This is “more akin to the post-9/11 transatlantic issues where demand for transatlantic flying declined significantly”, he added.

Given the scale of the disruption, Andrew Charlton, head of Aviation Advocacy, a consultancy, said that the Gulf’s flag carriers were likely to require cash injections from their state owners. 

“If you’re an airline without state backing you are going to be in trouble,” he said. 

The disruption has extended to cargo as freight from heavily disrupted global shipping shifts to aircraft, leaving some airports overwhelmed.

Goods sent to Geneva airport are being driven to Paris because planes taking off from the Swiss base are full, according to Giovanni Russo, who heads operations at the airport.

As the industry reels from the conflict, Jarvis, the head of easyJet, said he expected airlines’ share prices would quickly rebound when the war ends.

“The share price has moved against all airlines since the start of the conflict,” said easyJet CEO Jarvis. “I think they’ll close [short sellers] their position quite quickly if any ceasefires are announced.”

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