While fuel prices fall, airlines focus on staffing costs

With the lifting of sanctions on Iran, the strong possibility that already low fuel prices could fall by a further US$5 – US$10 has the potential to see airlines’ profitability increase, though considerable thought will have to be put in place with regard to hedging strategies which tend to vary considerably on either side of the Atlantic. Typically, European airlines are more heavily hedged against fluctuating fuel prices than their American counterparts.
United Airlines had previously hedged between 30% and 40% of its annual fuel needs, but Ted North, the MD of Corporate Finance confirmed that currently that figure stands at approximately 15% for 2016.
Friday saw oil prices drop to an all-time low since 2003 and prices were hovering around the US$20 mark before bouncing back to around $25 per barrel. However, it is known that Iranian oil reserves of 55 million barrels are already onboard tankers ready for shipment, and the head of the country’s national oil company has instigated an increase in output of 500,000 barrels a day.
Despite this, the price of fuel is not the only consideration airlines have with regard to profitability and many are now turning their attention more closely to staffing costs. IAG’s CEO, Willie Walsh, has indicated that staffing would probably be the biggest part of the group’s cost base this year. Highlighting the decision to move a number of office jobs to Krakow, Poland, he said: “We compete with the likes of Ryanair, the most aggressive low-cost airline in Europe. We’ve got to have a cost base that enables us to compete in an effective manner.”
The CEO of low-cost carrier Wizz Air, Jozsef Varadi, said that only 8% of costs were related to staff but that the airline had to keep cutting back because staff costs would otherwise rise with inflation. In the UK today inflation was on the rise at 0.2%, much of which was attributed to the substantial rise in air fares and domestic fuel costs.