Flight Plan

Regaining momentum during turbulent times

Amit Mehta | Updated on: Jun 12, 2022

Airlines must find a balances approach to navigating rising fuel costs

Given its complex nature, the airline industry is more vulnerable to instabilities than most industries. The sector, for years, has been battling with issues of rising costs and increasing uncertainties that have presented carriers with a unique set of circumstances, forcing them to tweak their strategies and change the way they do business. While the sector was already fraught with challenges before 2019, the pandemic and the subsequent lockdowns led to a significant setback for the industry world over.

Travel demand has bounced back faster than expected this year as global borders slowly, but gradually reopen, which is a welcome trend for an industry that continues to weather the impacts of the pandemic until today.

This demand, however, comes with its set of new challenges. For instance, the rising oil prices, exacerbated by the Ukraine-Russia conflict, are posing a significant obstacle for airlines to manage their operational costs and find a balance between increased capacity and profitability. Fuel price at current levels of $110/bbl to $130/bbl makes up 40-45 per cent of the total operational cost for players in the industry. This amounts to an increase of about 35-40 per cent from a year ago, which effectively impacts the airline’s revenue.

Managing costs

Finding a balanced approach to airlines navigating rising fuel costs is a continuous challenge. First, we need to remember that despite a pent-up demand, the current base of travellers is very price sensitive. As a result, any drastic fluctuations in airfares can lead to customers cancelling or rescheduling their bookings. Another area of concern is the continued border uncertainty. While the easing of border measures has played an essential step in the recovery of air travel, the pace of reopening continues to vary across the globe, with some governments taking a more cautious approach. This situation, coupled with the fear of new coronavirus variants, can again prolong the road to recovery for the sector, especially with airlines relying heavily on leisure travel demand over corporate or business-related travel.

Airlines must continue offering consumer-friendly options such as flexible booking, zero/minimal date change fees, relaxed cancellation policies, etc. Airlines must also work towards curating products and experiences aligned with the varying customer needs and optimising safety, especially as many are now venturing onto their first short and long-haul flights in over 24 months. The pandemic has also led to the adoption of digitisation within the aviation sector. To make more thoughtful, strategic decisions that maximise profitability and ensure sound finances, various airlines have begun to rely on AI and ML-powered digital solutions to enhance and strengthen the airline’s commercial decision-making and business processes.

Today, the airline industry still faces pandemic-related challenges and heightened responsibility to ensure the safety of travellers and workers. Still, it is now better positioned to address these challenges head-on. As the industry recovers, airlines must continue to take the necessary measures to adapt and react to changing market conditions while ensuring economic viability for long-term business sustainability.

The writer is Country Manager-South Asia of Malaysia Airlines

Published on June 12, 2022
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