Rising inflation is compounding the impact of the pandemic across the aviation industry. Usually inflationary pressures dampen leisure travel, but the leisure-lead recovery continues to be strong as people prioritize experiences and take advantage of the summer travel season, as highlighted in our Airline Economies Analysis. The boom has come with some difficult-to-solve complications that are preventing airlines from fully capitalizing on the comeback.
For carriers, escalating costs are putting additional pressures on the industry just as it is rebounding back. Additionally, workforce availability woes abound and have airlines pulling capacity out of the market so they can more reliably operate their schedules. Unfortunately, traveler experiences have been negatively impacted for many, and these labor shortages extend well beyond just the airline and into the airport, hospitality, and restaurant industries. Volume four of The Inflation Shift examines how inflation is shaping the three big cost categories for the aviation industry – labor, fuel, and maintenance -- and what consumers can expect from airlines in the coming months.
We Are Hiring: Labor Shortage
The global aviation industry is facing a labor shortage in nearly every category -- from pilots and aircraft mechanics to ticket and gate agents, flight attendants and baggage handlers. And if your flight is delayed, it isn’t uncommon to find restaurants and other airport concessionaires running at reduced capacity.
When the pandemic hit, many furloughed pilots found other employment while others took early retirement packages, intensifying the already looming shortage once passenger demand rebounded. Many blue-collar workers who once filled roles on the ramp or in the maintenance hangers, used the time to re-train themselves and learn new skills to find better jobs. For certain technical positions, extensive training periods make these roles even more difficult to staff. Because of this labor shortfall, airlines have had to reduced flights during one of their busiest and most lucrative seasons. And a reprieve doesn’t seem close.
Fuel Impact On Fares
Along with labor, fuel is one of the most expensive operating cost items for airlines. Prices are now 89% higher than from the beginning of the year according to US Energy Information Administration data. While some of the cost increases have been passed along to the traveler in the form of higher ticket prices, profit margins for airlines are still lower than they were in 2019.
To explore the impact of fluctuating crude oil prices on aircraft trip costs and passenger fares, Oliver Wyman released the Airline Fuel Cost Simulator. It combines current spot pricing from the US Energy Information Administration and DOT Form 41 data for typical US narrow body operations. By adjusting the assumptions, users can see the fuel cost percentage per passenger on a sample average flight.
The Aftermarket’s Second Order Impact
The aviation aftermarket is also seeing its own set of challenges with inflationary pressures. Supply chains were already disrupted due to the pandemic, and commodities, like titanium, which are vital to aircraft parts, are also seeing the inflationary price escalation. The war in Ukraine further complicates the supply and demand equation for some parts. 60% of senior executives in our annual maintenance, repair, and overhaul survey believe materials costs will increase by more than 5.5%.
Not only do airlines have limited access to vendors and parts, but the labor shortage extends to the aftermarket where aircraft technicians are frequently recruited away into other industries like space, building technology, and new emerging tech industries like autonomous vehicles. Candidates are scarce, and certifications and training for these roles take time. In fact, six out of ten senior airline and aerospace executives characterize the search for mechanics and technicians as “extremely or very challenging.”
Catch up on previous editions here: