Meaning: Airlines face pressure from all directions

Editor’s note: Tom Stalnaker is an Oliver Wyman partner and the company’s global leader in the aviation sector. Khalid Usman is a partner in Oliver Wyman’s transportation and service practice specializing in airline economics. Andrew Buchanan is Vice President of Oliver Wyman’s Transport and Service Practice. The opinions expressed in this commentary are their own.

After two years of lasting masks, social distancing and quarantine, not much can come between consumers and their summer vacations this year. Eruptions of Covid-19 no longer seem to stop them from traveling – and based on recent demand for flights, neither do higher rates for excursions.

But while consumers may have overcome the fear of Covid, the economy is still full of consequences – including high fuel prices, disrupted supply chains and a labor market filled with workers hoping to work at least part of the time away from home. For airlines, busy summer travel is becoming a season of operational and workforce headaches.

Although prices are significantly higher than they were in the winter, it is also one of the airlines’ biggest costs: fuel. Jet fuel prices have risen 89% since the beginning of the year through June 6, based on data from the US Energy Information Administration.

When fuel costs rise so fast, high prices do not always make a profit. Despite the requirement to travel, the profit margins for the airlines are still lower than they were in 2019. The average operating margin for 2022 for North American airlines is now expected to be 1.9% against 9.6% before Covid, based on new data from International Air Transport Association. It is down from an estimate from October of 4.8%, 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 against $ 17.4 billion in 2019.

These economies are not good, and they are exacerbated by the challenge operators currently face in maintaining the workforce and jumping into cancellations and delays caused by these shortcomings.

Whether it’s pilots, flight crews, ground workers or mechanics, airlines fall short, even with aggressive hiring. In April, American airlines employed almost 5,000 more workers than in March and 16,000 more than they had on the payroll in April 2019. Nevertheless, pilot figures reflect the pressure: Based on Oliver Wyman’s latest calculations, there will be a shortage of more than 8,000 pilots in end of year only in North America. And among maintenance technicians, a low number of candidates has made it difficult to fill vacancies: Nearly three-quarters of North America’s leading aerospace leaders rank labor shortages as the number one disruptive industry, according to a 2022 survey by Oliver Wyman. Six out of 10 characterize the search for mechanics and technicians as “extremely or very challenging”.

Airlines want nothing more than to add flights to busy summer routes. But accelerating labor shortages have forced them instead to reduce plans for the summer to better reflect their ability to man flights. Between March 16 and June 8, summer routes – usually packed with more flights than at any other time of the year – had been reduced by 3.1%, based on data from OAG and Oliver Wyman’s app. Given the importance of summer revenue for carriers, this equates to retailers closing some of their stores around Christmas.

Due to these labor shortages, any disruption of the schedule – from weather to delayed fuel delivery to a plane taking too long to travel from a street – threatens dramatic ripple effects. During Memorial Day weekend, for example, there were more than 2,500 cancellations at US airports, and the month of June has also seen thousands.

Since the beginning of the year, the airline’s capacity – measured on seats deployed and the distance they have flown – has been steadily down. In June, capacity was almost 7% lower than in June 2019, based on OAG and data. It was mostly a function of lack of flight workers, but also staffing difficulties at checkpoints from the Transportation Security Administration, air traffic control and other important airport functions, which also contribute to flight delays. Some of this also reflects increased absenteeism due to workers becoming ill from Covid.

Delays and cancellations can increase fuel consumption and costs as the planes idle on the asphalt and wait for a place to open for either departure or departure. They also provide airlines with thousands of passengers who still need to get to their destinations – a challenge that has grown exponentially with limited capacity and short staffing.

The shortage of labor has also been tough for the workers. Most people face significantly heavier workloads at a time when many are new to the job, and are still responsible for ensuring that travelers follow the Covid protocols. In 2021, the 10 largest operators saw that the proportion of seats per employee increased 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 the U.S. Department of Transportation Form 41 submissions and monthly OAG schedules via

For airlines, the pressure on margins – at a time when demand has been strong and people seem willing to pay higher prices – raises questions about what lies ahead for industry, especially as global economies continue to decline. While higher fuel and labor costs are not expected to decline immediately, demand for flights is likely to fall as GDP growth declines.

If airlines can maintain higher prices and resist bringing back too much capacity, operating margins should cope with this year’s inflation. But the lack of work indicates some structural problems that must be solved anyway.