The head of a global airline industry group has warned that higher fares are here to stay as long as the price of oil remains elevated. The International Air Transport Association (IATA) said global losses would amount to US$9.7 billion this year with industry-wide profit on the horizon next year, but higher oil prices, inflation and the Ukraine conflict were challenges for the industry. Willie Walsh, the IATA director general, noted that the oil price was US$80 a barrel between 2010 and 2019, the most profitable period in the airline industry, the operating margin was around 5.5 per cent and carriers had “no choice” but to recover costs through higher fares. Walsh added that a mismatch – where demand had recovered faster than supply had returned to the market – was also having an impact on airfares. He said airfares would remain high as long as oil prices were up as airlines did not have a lot of “fat in the system they could take out”. Carriers around the world have been forced to adjust schedules and take longer routes because of the Russian invasion of Ukraine. Dozens of countries, including the European Union ones, Britain and the United States, closed their airspace to Russian airlines in March. Travel disruption to spill into first quarter of 2023, head of IATA warns Russia banned airlines from most of those countries from entering or flying over the country in retaliation. Because Russian airspace is closed to carriers from nearly 40 countries, flights have had to be diverted or cancelled. The worst affected markets are Europe to Asia and Asia to North America, including flights between the US and Northeast Asia and between Northern Europe and most of Asia. Cathay Pacific Airways told the Post on Thursday that several alternative routes set up by the company had added 90 minutes of flying time and that none of its planes would travel through Russian or Ukrainian airspace. Jet fuel prices have soared since the start of the conflict. Some airlines, such as Cathay, have oil hedges that help to offset part of the price increase, but other carriers are unhedged and exposed to market prices. A Cathay spokeswoman said: “We have several different alternative southerly routings, which may potentially add up to 90 minutes of flying time with no fuel stops required for the aircraft we operate. “Regarding the recent volatility of fuel prices, we have a prudent fuel hedging policy in place to reduce exposure to fuel price risk by hedging a percentage of our expected fuel consumption. “We do not speculate on oil prices, but use hedging to manage short- to medium-term volatility in oil prices and therefore our fuel costs.” Cathay Pacific expecting smaller losses in first half of 2022 Fuel is the single largest operational expense for airlines. Pent-up demand following the pandemic, combined with fewer aircraft in the skies and rising fuel prices has contributed to higher ticket prices for passengers. Searches for a return economy-class ticket between Hong Kong and London on Cathay Pacific in July showed prices as high as HK$41,000 (US$5,222). Cirium, an aviation analytics company, said economy class airfares between Hong Kong and London’s Heathrow airport were up 44 per cent compared with April 2019. Flights between Russia and the rest of the world accounted for 5.2 per cent of global international traffic last year. Walter Cho, chairman and chief executive of Korean Air Lines, said at a recent meeting of more than 100 airline leaders in Doha that the Russian invasion of Ukraine was a “nightmare” for carriers. The airline, which does not fly over Russia, said its flights to Europe took an additional four hours on a round trip from Seoul. Hong Kong’s Cathay Pacific to hire 4,000 staff by end of 2023, CEO says The added blow from the combination of a strong US dollar and high oil prices has worsened problems for the industry. As the war in Ukraine caused a spike in oil prices, the US dollar also saw a boost from interest rate rises, which were designed to tackle inflation. The US dollar trade-weighted real exchange rate index is at a record high and the benchmark Brent crude oil price rose by about one-third to around US$111 a barrel on Friday from US$84 at the beginning of this year. Airlines not from the United States were affected by the rise in the US dollar due to increasing oil prices, aircraft purchase and leasing charges. Such costs become higher in their local currency when the dollar is stronger. “It’s painful, buying fuel, buying everything,” Cho said. The US dollar had traded at the highest level against the won in more than a decade. Cho added that his airline was at 30 per cent of pre-pandemic capacity and could not sustain that without coverage for the additional fuel cost. ‘Revenge travel’: Singapore airfares up 27 per cent on pre-pandemic levels Topi Manner, CEO of Finnair, told the Post on the sidelines of the meeting that his airline was “probably the most impacted European airline out of the Russian airspace closure”. The conflict had forced the carrier to transform its strategy and create a new network. Before Russian airspace was closed, the carrier had carved out a strategy of being a fast connector between Europe and Asia flying back and forth from its Helsinki hub in 24 hours, using Russian airspace. Japan, South Korea and China were the most affected as these markets generated 30 per cent of the airline’s revenue before the pandemic. Now those routes took 40 per cent longer, meaning the routes consumed 40 per cent more fuel and with the fuel price doubling since the start of the Ukraine war, Manner said the airline had lost its benefits. He added: “In order to make those routes commercially viable, the prices will need to go up for the passengers as well as for the cargo and then on top of this there are still a lot of Covid-19 restrictions in these markets.” Manner said the airline would continue to fly to major cities, such as Tokyo and Seoul, but that it was no longer flying to secondary ones, such as Sapporo or Nagoya in Japan, Busan in South Korea and Nanjing or Xian in China. He added the airline was adding new routes such as Dallas and Seattle in the United States, and Mumbai in India and would also increase its schedule to Singapore.