Airline passengers will have to get used to more expensive tickets, says IATA director

The price of oil is very high, and there is not much that airlines can do about it – after all, fuel is the biggest cost of companies in this market.

The consequence is in the price of travel: passengers will have to get used to more expensive air tickets, according to Willie Walsh, director general of the International Air Transport Association (IATA). The organization is holding its annual meeting this week in Qatar.

“People will have to get used to it (with more expensive tickets). I’m no longer an airline CEO, but I look at the fundamentals,” Walsh said. “The price of oil is very high, and it is the biggest cost of an airline. Companies can do little about it,” says Walsh.

According to Walsh, companies can even do a short-term hedge (protection). “But in the long run, everyone has to pay the price of oil, which has structurally changed to a higher level. And there is no way for airlines to absorb that.”

barrel high

The value of oil remains high on the international market. On Monday (20), the price of Brent oil closed the day at US$ 114.13 a barrel. Banks and brokers heard last week they believe that the price of oil could rise from US$ 130 a barrel in the medium term and reach US$ 150 by the end of the year, as Morgan Stanley predicted in a recently released report.

“I don’t know what the price of oil will be, but everything suggests, when you look at the curve, that even if it decreases a little, it will still be higher than we expected two years ago, when the spot price of a barrel was $50 or so. $60,” Walsh said. “Now we have a curve at $110, starting to pull back, but at a much higher level.”

Walsh uses pre-pandemic industry data to show the size of the impact of rising oil. “The average price of a barrel between 2010 and 2019 was US$ 80. At that time, oil represented, on average, 27% of the industry’s costs. This was the best decade in the history of the industry, when our margin was 5.5%. Then you see that it is not a very profitable industry. So the average price goes up 30% and goes from $80 to $105. The math is simple, ticket prices need to go up.”

response to criticism

The director of IATA disagrees with the criticism of the airlines and calls them “unfair”. “I don’t think it’s hard for people to understand. An airline that is losing money cannot be accused of speculation when it is raising its prices because costs have increased significantly. They are still losing money.”

A survey by IATA, released on Monday, shows that losses in the air sector this year should be US$ 9.7 billion, still due to the Covid-19 pandemic. The entity estimates that 2023 should finally be the year in which the sector as a whole returns to profit.

Among the reasons for the relative optimism in the sector are the strong resumption of demand that has been verified and the efficiency gains of companies, even with the jump in the price of oil. In advanced countries, the low level of unemployment has also favored the recovery.

Even in Latin America, despite the economy still being weak, companies recovered traffic “robustly”, according to IATA. Demand today is at 94.2% of the pre-crisis level, only below that seen in North America (95%).

“Energy prices are driving up inflation and being passed on to consumers. I think it’s unfair for people to criticize airlines when they don’t have a choice,” says Walsh. “Airlines are losing money, costs are rising. They have to take all the measures they can to survive in this environment.”

The information is from the newspaper. The State of São Paulo.

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About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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