According to a news report by Reuters, American Airlines’ Chief Executive Officer Doug Parker warned that passengers could end up having to pay higher fares for their airline tickets if fuel prices continue to remain high. These high prices could end up forcing carriers to remove seats from the market.
The price of aircraft fuel has gone up more than 50% from the same time last year. Parker, in an interview with the press on the sidelines of the annual IATA conference of airlines executives held in Sydney, stated that if these high fuel prices become the norm, then, over time, capacity as well as growth in the industry would become less, which would lead to higher prices for tickets.
IATA (International Air Transport Association) is an organization that represents 280 airlines from across the globe. The association’s member airlines also represent about 83% of all global air traffic. At its annual conference, the organization stated that it would need to revise and reduce its forecast with regard to industry profitability in 2018 because of higher fuel prices as well as higher infrastructure and labor costs.
American carrier companies have also been under pressure because of increasing competition from the Gulf carriers. According to the three biggest airlines in the US, the Gulf airline companies have an unfair advantage since they receive massive – and unfair – subsidies from their governments, allowing them to operate at lower costs.
This issue, however may soon be resolved as the US has reached agreements with the United Arab Emirates as well as Qatar with regard to this issue. When asked about these agreements, Parker said that he had been pleased with the talks between the two countries’ governments, however, they needed to see more commitment from the Gulf airline companies before the American airline companies could think about partnering with them.
The CEO of American Airlines stated that they (the American carriers) had not yet had enough time to assess the impact of the resolutions agreed up by the Gulf countries and the US, so they needed time to make a decision.
Last year, Qatar Airlines had been planning to purchase a stake in American Airlines, however, both parties could not reach an agreement. Qatar Airlines stated that the purchase did not meet its objectives, while American Airlines’ executives had taken exception to the deal, not wanting the middle-eastern airlines company to buy a stake in their company. When Parker was asked about a future investment from one of the Gulf airlines, he said that while they were open to all investments, he did not feel that American Airlines needed such transactions.
And it isn’t only rising fuel prices that have the IATA and airlines companies worried. With the US government renewing its tariff threats against China and also imposing duties on steel and aluminum on its allies Canada, the European Union and Mexico, the airlines industry is warning that there will be repercussions.
According to the director general of the IATA, Alexandre de Juniac any measure taken by any government that reduces trade and therefore limits passenger travel is bad news. Parker also commented on this situation, stating that the industry has a right to be concerned any time there is tension due to which free trade and global trade gets negatively impacted.
The Chief Executive Officer of the World Travel and Tourism Council (WTTC), Gloria Guevara Manzo stated that escalating trade tensions lead to uncertainty, which in turn puts a curb on business travel. And one of the key drivers for airlines’ profits is business travel.