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| 2 minutes read

Challenges to the airlines: From Covid to rising fuel prices

These days, we are all unfortunately familiar with the shock, financial distress, and emotional pain caused by filling our gas tanks.  As the fuel enters our vehicles, we watch in real-time as the price quickly rises on the pump’s display. This is usually accompanied by muttering an expletive under your breath or shaking your head is disbelief. It is no doubt painful. With the continuing war in Ukraine, rising inflation, geopolitical challenges, and the US government’s deliberate approach, it could take many months before we see a substantial dip in fuel prices, notwithstanding President Biden’s announcement to release additional oil from the strategic reserve, and other countries’ commitments to release their reserves.  It is projected that in the summer months ahead, we will continue to see gas prices hovering around, on average, the $4.00/gallon mark.

Those who have recently purchased an airline ticket may have noticed that fares seem to be on the rise as well. They are.  For the airlines, the spike in the cost of fuel is certainly a reason for the increasing fares, but it is not the only reason. The demand for commercial air travel is higher than at any point in recent years, yet pilot shortages and new aircraft delivery delays continue. These factors all impact the supply/demand equation and the bottom line.  

In the past, some airlines have tried “fuel hedging."  This involves airlines and fuel suppliers negotiating and contracting to set a predetermined price of fuel. Different airlines, however, have had varying levels of success with this practice. Reed Smith’s aviation attorneys can advise and counsel the airlines on this practice, and assist in charting the best course of action during these uncertain economic, political, and geopolitical times. In addition, our transportation team has its finger on the pulse regarding the challenging yet inevitable move to greener and renewable energy sources for air travel.

In the short term, high fuel prices, staff shortages, aircraft delivery delays, and high demand will result in a challenging summer for commercial air travelers and the airlines.  The confluence of these factors make litigation more likely - whether it be a passenger assault, a labor issue, or a contractual dispute. 

In the long term, Congress (the House in particular) will continue to introduce legislation establishing targets and standards for reducing greenhouse gas emissions from aircraft travel and providing incentives for the production and use of sustainable aviation fuel.  The future of all transportation is heading in that direction, and we will inevitably get there here in the U.S.  Strategic planning is necessary, now. 

While we may be emerging from the COVID-19 pandemic, it seems like travelers could be in for a bumpy ride.   With oil prices, staff shortages and even aircraft delivery delays, travelers in the United States - and elsewhere - may find they are subject to more flight cancellations this summer.  

Tags

transportation, aviation, airlines

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