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It's a tough time right now to be in the airline industry, and even one of the biggest US airlines is feeling the heat, as United Airlines CEO Scott Kirby talks fears about the market.
As you may well know, the US and Israel have been at war with Iran for some time now, after the two nations dropped missiles on the country on February 28.
But Iran wasn’t taking things standing still, and ended up showing its own force against the United States and Israel, by bombing its opposition's interests in neighboring countries.
While the war has already caused chaos, Iran’s next move involving the Strait of Hormuz has brought just about one fifth of the world to its knees – including the US’s aviation industry.
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You might be wondering why, but Kirby’s message reveals its true impact beyond the battlefield.
The airline, which has been operating since 1926, may need to increase its fares as much as 20 per cent amid rising fuel prices.
This comes after Iran closed its Strait of Hormuz, disabling a large portion of the world’s oil from being able to pass through – upsetting the economy.
Kirby has long been worried about the impact of oil, ever since the war began.
Thankfully, the airline has managed to pull through, but he has said it’s only a matter of time that we see some companies go bust as a consequence.
“We’ve had a doubling of fuel prices as we’ve gotten through the end of the quarter, and [to] still be solidly profitable, grow earnings year over year, is a pretty remarkable achievement,” Kirby previously said to CNBC.
Kirby warned that increasing fuel costs could even bring down airlines completely.
“If these other guys make the same mistakes they made six years ago (during the Covid-19 pandemic), and if the forecast about $175 per barrel is right, you’ll see airlines not survive,” he said, per The Los Angeles Times.
According to the Independent, CEO Kirby said the airline is hopeful about offsetting the cost eventually, and it will do ‘whatever it takes to recover 100 percent of the increase in jet fuel prices as quickly as possible,’ but that it is transferring the increase in fuel cost to its customers by roughly 50 per cent.
“If prices stayed at this level, it would mean an extra $11B in annual expense just for jet fuel. For perspective, in United’s best year ever, we made less than $5B,” he had also written in a memo to United Airlines employees, per Yahoo!.
In the long run, airlines may not be the only companies to go down, as oil isn't just used for energy...
Everything from pharmaceuticals to clothes and plastics are created using petrochemicals, where 'petrol' is needed, aka oil, to make it.
So, we might all be wearing cotton sacks and traveling by horse and carriage by the end of the year.
