The Threat to Airlines from the Increase in Fuel Prices
The increasing fuel prices have become a major concern for both consumers and businesses alike. Non-oil-rich countries have been hit with unprecedented fuel prices, with the war in Ukraine impacting fuel prices.
Companies that heavily rely on fuel, such as transportation companies and airlines are now facing significantly increased fuel costs.
While many businesses will have to incorporate the rising fuel into their pricing structure or their client fees, this approach could lead to a fall in business. For airlines, that are still recovering from the devasting impact of travel restrictions, increasing fares could price people out of flying.
Business travel is still significantly lower than pre-pandemic, with many businesses deciding that online meetings can replace face-to-face meetings in many situations. With low business travel numbers, airlines must focus more on their main target audience – holidaymakers.
Jet fuel has increased over 100% in comparison to last year, which even the most successful airlines will struggle to deal with. Passing on this kind of price hike to passengers will inevitably price people out of taking foreign holidays, especially families paying for 3, 4 or even more seats. Consumers are already facing high rates of inflation and rising living costs, so a holiday could be deemed an unnecessary luxury for some.
Minimising airline costs
Airlines must look at other ways that they can minimise the financial hit of the fuel price hikes, rather than passing the costs directly onto passengers in full. Finding alternative ways of reducing costs is going to be crucial for airlines to overcome the fuel increases.
Some airlines have been targeted for criticism for employing cheaper labour for baggage handlers and other on-ground roles. Other airlines try to boost profits by charging for services such as excess baggage or child equipment such as car booster seats. Again, these approaches often attract customer complaints and can damage the reputation of an airline.
Alternative ways to improve profitability are therefore better for the reputation of the business, so finding solutions that do not directly affect the customers can deliver better outcomes.
Reviewing the existing supply chain to identify cheaper alternatives is one option, but you also must avoid compromising the quality of service provided. Generally, cheaper services are poorer quality services, so you have to get the balance right.
All of the solutions we have discussed above have pros and cons but there is another way to improve profitability that will not impact the quality of service or damage reputation. This is the option of utilising advanced software to identify efficiencies that can be achieved and reduce costs this way.
As an example, catering management can benefit from software such as Promeus, a digital catering management system. The software can simplify processes such as Galley planning and it can also deliver significant savings through reducing food wastage using intelligent, data-driven planning. The software essentially delivers smarter ways of operating to deliver cost savings.