Opinion: Airlines are under pressure from all directions

But even as consumers have overcome fears of Covid, the economy is still plagued by its impact – including high fuel prices, disrupted supply chains and a labor market full of workers hoping to be able to work at least part of the time from home. For airlines, busy summer travel turns into a season of operational and staffing headaches.
While fares are significantly higher than in winter, it’s also one of airlines’ biggest costs: fuel. Kerosene prices are up 89% year-to-date through June 6, based on data from the US Energy Information Administration.
When fuel costs are rising so quickly, high fares don’t always translate to profit. Despite the travel noise, airline profit margins are still lower than in 2019. The average operating margin for North American airlines in 2022 is now expected to be 1.9% versus 9.6% pre-Covid, based on new data from International Air Transport Association. That’s less than a forecast of 4.8% in October, a decline that reflects rising fuel prices, capacity cuts and disrupted schedules due to labor shortages. Profits for North American airlines are expected to be $8.8 billion in 2022, up from $17.4 billion in 2019.

Those economic factors aren’t terribly good, and they’re being made worse by the challenge airlines are currently facing to retain their workforce and the surge in cancellations and delays these outages are causing.

labor shortage

Whether it’s pilots, flight crew, ground staff or mechanics, airlines fall short even with aggressive attitudes. Through April, US airlines employed nearly 5,000 more people than in March and 16,000 more than on their April payroll in 2019. But the pilot numbers reflect the bottleneck: According to the latest calculations from Oliver Wyman, more than 8,000 pilots will be missing by the end of the year year in North America alone. And among maintenance technicians, low candidate numbers have made it harder to fill vacancies: nearly three-quarters of senior executives at airlines and aerospace companies in North America rank labor shortages as the industry’s top disruptor, according to a 2022 survey by Oliver Wymann . Six out of ten characterize the search for mechanics and technicians as “extremely or very challenging”.
Opinion: Inflation is painfully high but should ease soon

Airlines would love nothing more than to add flights to busy summer schedules. But mounting labor shortages have instead forced them to scale back their summer plans to better reflect their ability to staff flights. Between March 16 and June 8, summer schedules — typically packed with more flights than any other time of year — were cut by 3.1%, based on data from OAG and Oliver Wyman’s PlaneStats.com app. Given the importance of summer revenue for hauliers, this equates to the closure of some retailers’ stores around Christmas.

Because of these workforce shortages, any disruption to the flight schedule – from the weather to a delayed fuel delivery to a plane that is taking too long to depart from a gate – threatens to have dramatic knock-on effects. For example, Memorial Day weekend saw more than 2,500 US airport cancellations, and June saw thousands as well.

Falling capacity

Since the beginning of the year, airline capacity – the amount of seats deployed and the distance traveled – has steadily declined. Through June, capacity was nearly 7% lower than June 2019 based on data from OAG and PlaneStats.com. This was mainly due to the shortage of flight crews, but also due to staffing difficulties at Transportation Security Agency checkpoints, air traffic control and other key airport functions, which also contribute to flight delays. Some of this also reflects increased absenteeism due to workers falling ill with Covid.

Delays and cancellations can add to fuel burn and costs as planes idle on the tarmac waiting for a seat to take off or disembark. They also burden airlines with thousands of passengers who have yet to get to their destination – a challenge made exponentially greater by limited capacity and staffing shortages.

worker burnout

The labor shortage has also hit workers hard. Most are facing significantly increased workloads at a time when many are new to the job and still responsible for ensuring travelers follow Covid protocols. In 2021, the top 10 airlines saw their seat ratio per employee increase by almost 80% between February and July. Between April 2021 and this April, the number of seats per employee increased by 17%, according to data from U.S. Department of Transportation Form 41 filings and monthly OAG flight schedules via PlaneStats.com.

For airlines, the pressure on margins – at a time when demand has been strong and people seem willing to pay higher fares – is raising questions about what lies ahead for the industry, especially given the ongoing slowdown in the global economy. While higher fuel and labor costs are unlikely to ease anytime soon, demand for air travel is likely to fall as GDP growth slows.

If airlines can sustain higher fares and resist bringing back too much capacity, then operating margins should be able to weather this year’s inflation. But the labor shortage points to some structural issues that need to be addressed independently.