(Bloomberg) — Airlines around the world are raising prices for bags and seats, dialing back profit forecasts and openly discussing ways to link up with rivals as the chokehold from war-related fuel costs tightens.<\/p>\n
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Just in the past few days, United Airlines Holdings Inc. Chief Commercial Officer Andrew Nocella declared the industry in \u201cuncharted territory,\u201d while Alaska Air Group Inc. dispelled any hope that consumers might enjoy lower fares again anytime soon.<\/p>\n
On the more upbeat end of the spectrum, Emirates President Tim Clark said that most people, after all, quickly move on, and that things will swing back to normal soon.<\/p>\n
Whether the optimists or pessimists ultimately prevail, what\u2019s certain is that this past week has brought into sharp focus the many challenges bearing down on the airline industry. That\u2019s forcing executives to make some consequential decisions to stabilize their operations.<\/p>\n
Complicating matters further is a US president openly tipping the scales of competition by touting a possible $500 million bailout of beleaguered Spirit Aviation Holdings Inc. while panning other potential transactions, including a discussed merger between United and American Airlines Group Inc. And not least, there\u2019s the uncertainty stemming from Donald Trump\u2019s vacillating pronouncements on the state of the Iran war.<\/p>\n
Taken together, the industry is heading into months of insecurity in what should have been a year of strong demand, with initial projections for a record $41 billion in earnings and 5.2 billion passengers. Airlines have invested heavily in their products, from cabin upgrades to lounges to in-flight connectivity as they bet that spending on the more luxurious air travel experience would persist.<\/p>\n
But now, the exuberance that propelled airlines in the first few months of the year has given way to a sense that the industry has lost a clear sense of direction.<\/p>\n
\u201cIt\u2019s not possible to know with confidence all the ways the industry could be impacted,\u201d Southwest Airlines Co. Chief Executive Officer Bob Jordan said, pointing to \u201csignificant economic and geopolitical uncertainty.\u201d<\/p>\n
\u201cI can\u2019t predict exactly where fuel is going, and so you can\u2019t predict exactly where pricing and fares are going,\u201d he said.<\/p>\n
For the immediate future, they\u2019re going up. Consumers are being counted on to absorb the extra billions of dollars in jet fuel costs, so airlines are levying new surcharges and raising fees to check bags and select seats.<\/p>\n
\u201cThe airlines never let a good crisis go to waste,\u201d said William McGee, a senior fellow for aviation and travel at the nonprofit American Economic Liberties Project.<\/p>\n
American Airlines said it\u2019s facing $4 billion in extra fuel-related costs until the end of the year, a charge that it will try to pass on to the consumer as much as possible. Airfares are already about 15% to 20% higher now, and it\u2019s unlikely they\u2019ll retreat entirely when the war footing eases, United CEO Scott Kirby said Wednesday.<\/p>\n
\u201cThe longer this lasts, the higher the probability goes that the pricing increases hold,\u201d Kirby said.<\/p>\n
And once the rush of summer travel subsides, carriers will probably take another hard look at capacity and weed out more routes that have become unprofitable.<\/p>\n
Chicago-based United said it expects it can recapture as much as 100% of the higher fuel costs by the end of the year by increasing prices for customers.<\/p>\n
Delta Air Lines Inc. CEO Ed Bastian said in a recent earnings call that the company would look at the degree to which it could \u201cretain any of the pricing strength\u201d even after fuel costs come down.<\/p>\n
The saving grace for the moment is that bookings remain strong with peak summer travel season arriving \u2014 though cracks are showing. United said current demand is resilient, but that likely won\u2019t hold as more expensive tickets discourage flying.<\/p>\n
Like American Airlines a few days later, the carrier slashed its full-year profit forecast.<\/p>\n
American CEO Robert Isom said demand remains robust for now and he expects double-digit revenue growth in the current quarter, even as the carrier trims marginal flying.<\/p>\n
Still, the company lowered its annual forecast and said it may end the year with a loss.<\/p>\n
That U-turn comes as American and Alaska Air pursue potential revenue-sharing agreements and other strategic partnerships, Bloomberg News reported.<\/p>\n
American also has been the subject of speculation about a potential merger with United. Kirby floated the idea during a February meeting with Trump, people familiar with the matter have said.<\/p>\n
American and the usually business-friendly president swatted back the idea, saying it would reduce competition. Days later, Trump threw airline bosses another curveball, saying he\u2019s weighing a government purchase of Spirit rather than letting it go under.<\/p>\n
\u201cThe current administration doesn\u2019t make long-term planning easy, and airline CEOs are being forced to think on their feet,\u201d said Art Wheaton, director of labor studies at Cornell University\u2019s School of Industrial and Labor Relations.<\/p>\n
That includes C-suites around the world. There have been signs that Asian countries are hoarding jet fuel, and the International Energy Agency warned that Europe may deplete its supplies in weeks.<\/p>\n
Deutsche Lufthansa AG, Europe\u2019s largest airline group, is cutting about 20,000 flights from its summer schedule and adopting the pricing models of budget airlines by selling tickets that don\u2019t include bags.<\/p>\n
As in every crisis, there\u2019s always one person telling everyone to calm down. In aviation, that\u2019s Emirates\u2019 Clark, whose Dubai-based carrier has been devastated by the conflict.<\/p>\n
The world\u2019s largest airline is operating at 65% of capacity after a near-total grounding as travelers avoid the Persian Gulf region. But once the Strait of Hormuz reopens, it should only take one-to-two months for business to rebound, he said.<\/p>\n
\u201cPeople have short memories,\u201d Clark told a Berlin conference Thursday. Once the fighting stops and there\u2019s a degree of stability, \u201cthings will be back to normal.\u201d<\/p>\n
–With assistance from Leen Al-Rashdan.<\/p>\n
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\u00a92026 Bloomberg L.P.<\/p>\n","protected":false},"excerpt":{"rendered":"(Bloomberg) — Airlines around the world are raising prices for bags and seats, dialing back profit forecasts and…\n","protected":false},"author":2,"featured_media":410336,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[49502,1877,114,54,163003,85,46,7149,193930,117],"class_list":{"0":"post-410335","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-american-airlines","9":"tag-bloomberg","10":"tag-business","11":"tag-donald-trump","12":"tag-fuel-costs","13":"tag-il","14":"tag-israel","15":"tag-southwest-airlines-co","16":"tag-tim-clark","17":"tag-united-airlines"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/410335","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=410335"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/410335\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/410336"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=410335"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=410335"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=410335"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}