Air France to Pass on Rising Fuel Costs

Edward Russell
March 28th, 2022 at 12:01 AM EDT

Russia’s invasion of Ukraine so far has not dented summer demand for travel between North America and Europe, despite fears soon after Russia’s invasion of its neighbor last month that Europe’s recovering tourism industry could suffer from the fallout, Air France CEO Anne Rigail said at the Skift Forum Europe in London on March 24.

“At the beginning of the war, bookings were paralyzed for a few days,” Rigail said. “We were wondering if [American] passengers would fear coming to Europe because of the war, but we have not seen this,” she said, adding that booking momentum for summer travel has picked back up.

But that isn’t to say the French flag carrier has not been affected by the war, which broke out on February 24, when Russia invaded Ukraine. Fuel prices are rising, and Air France will have to raise fares this summer. Economy-class fares on roundtrip flights to North America could rise by $33 (€30), and in business class by €100 ($110). “It will hurt for sure,” Rigail said.

The fare increases will come despite Air France having hedged much of its energy costs. Air France has hedged more than 70 percent of its fuel costs for the first and second quarters, which takes the sting out of rapidly rising oil prices, which soared past $100 per barrel for the first time since 2014 in the aftermath of Russia’s invasion. Although oil prices have retreated from their high of close to $130 per barrel in late February, the price of industry benchmark Brent crude remained at $112 per barrel as of March 24. Hedging “won’t be enough to avoid” raising fares, Rigail said.

Where the war has had a direct impact is on flight times to Asia. Flights between France and North Asia must take a more circuitous route to avoid Russian airspace, adding as many as four hours to a flight to Japan. But Air France, like all carriers that are now avoiding Russian airspace, benefits from an unexpected pandemic silver lining: Because of continued strict travel restrictions in much of Asia, demand between Asia and Europe remains depressed. The longer flight times have not yet translated into passengers booking away from Air France.

Still, despite higher fares, the prospect of the war spreading, and longer flight times on some routes, Air France is seeing strong demand for summer travel. In fact, capacity will be higher than 2019 in several markets, including to North America, Africa, the Caribbean, and the Indian Ocean. Throughout the pandemic, demand for flights to Africa, where Air France historically has had a strong network, the Caribbean, and the Indian Ocean remained resilient, powered by leisure travel to warm-weather destinations and by to visit friends and family. “Except in Asia, demand has come back in every region,” Rigail said.

Bookings to South America are starting to pick up, Rigail said. And demand from North America so far is exceeding 2019 levels for summer travel. Flights to the U.S started to recover in November, after the U.S. reopened to vaccinated travelers and were strong through December, before dipping in January and the first half of February due to the spread of the Omicron variant. “As soon as people can return to flights, they do,” Rigail said.

But the nature of travel has changed, she noted. Travelers skew younger, and leisure dominates, while business travel lags. These younger travelers are more likely to book longer trips that combine business travel with leisure, or “bleisure,” Rigail said.

Sustainability, important to younger travelers, partially informs this change in travel behavior. “Sustainability is changing the way our customers want to travel and how they expect us to tackle global warming,” Rigail said. To that end, Air France is stepping up its investment in sustainable aviation fuels (SAF). It reduced its greenhouse-gas emissions by 6 percent between 2005-2019, and is on track for a further 15 percent reduction by 2030, with the goal of meeting the airline industry’s net-zero carbon emissions goal by 2050.

But SAF, though promising, remains a challenge. The supply in Europe is “scarce,” and is four to eight times more expensive than conventional fuel, Rigail said. Air France gives passengers the option to pay a sustainable fuel surcharge of between €1-30 per ticket, depending on fare class. The carrier sees more uptake for this option among corporate travelers, whose companies may mandate sustainable travel.

One of the most effective ways Air France can improve its sustainability is by operating newer, more fuel-efficient aircraft. Many airlines around the world took the pause offered by the pandemic to retire older, less-efficient airplanes, and replace them with more efficient types. Air France is no exception. The carrier has ordered more than 30 Airbus A350s for long-haul flights, and 60 Airbus A220s for shorter operations. These aircraft are as much as 20 percent more fuel efficient than the ones they are replacing. “More than half our fleet will be renewed by 2025,” Rigail said.

In addition, Air France is cutting back its shorter flights within France. The country passed a law last year prohibiting domestic flights on routes that can be served by a high-speed train in under two hours and thirty minutes. In response, Air France dropped flights from Paris Orly to Bordeaux, Nantes, and Lyons, among other destinations, and is working with the French national rail company, SNCF, to improve connections between flights and trains.

In the midst of its fleet renewal, there is one thing Air France will not do: Return to supersonic flights. Air France and British Airways were the only two airlines in the world to regularly offer supersonic flights, on the Concorde from the 1970s to the early 2000s, when both airlines retired the aircraft. “Times have changed,” Rigail said. “Our priorities now are to make air travel sustainable, and it would not be responsible to the younger generation to work on supersonic flight.”

“We want to have aircraft that emit less,” Rigail said.

Madhu Unnikrishnan

In Other News

  • The war in Ukraine has not extended to airline alliances, yet. Both Aeroflot and S7 remain members of the SkyTeam and Oneworld alliances, respectively. Delta Air Lines severed its codeshare relationships with Aeroflot shortly after Russia invaded Ukraine last month. Air France-KLM has ended its relationships with the Russian state carrier to comply with EU sanctions. Oneworld said it is leaving it up to its members to continue codesharing with S7. Aeroflot has significantly cut back its international schedule on orders from the Russian government, which warned against flying to “unfriendly” countries for fear the airline’s leased aircraft may be seized. S7 suspended international flights shortly after the invasion began.
  • Ukraine International Airlines (UIA) is grounded due to the war, but it may still fly. “In times of martial law and the closure of Ukrainian airspace, UIA strives to maintain operations in order to ensure its contribution to the economic stability of Ukraine,” UIA said on its website. The carrier is offering its aircraft and crews for wet-leasing operations outside its home country. In addition, UIA is soliciting offers for charter and humanitarian flights. But, there is an exception. “Cooperation is possible only with companies that do not fly to Russia and Belarus, and also do not receive funding from these countries,” UIA said.
  • Latam Airlines Group can put its reorganization plan to a creditor vote after receiving approval to do so from a Bankruptcy Court for the Southern District of New York judge. The plan does not include a hostile takeover by Azul that was backed by some creditors. Voting will close on May 2, and a confirmation hearing is scheduled for May 17 and 18.
  • UK regional carrier Flybe is back. The airline that was the first airline casualty of the Covid-19 crisis will relaunch on April 13 with flights between Birmingham and Belfast City. Flybe will progressively resume another 21 routes through August 25, including a return to London Heathrow with flights to Amsterdam, Belfast City, and Leeds Bradford beginning April 28. The rebooted carrier will operate De Havilland Dash 8-400 turboprops.
  • Iberia is planning for hot summer demand for travel to Spain. It plans to operate 85 percent of its systemwide pre-pandemic capacity this summer, and 100 percent in Europe. The carrier has restored flights to several destinations, including San Francisco, and daily frequencies to cities in Argentina, Colombia, and Mexico. Iberia Express is expected to operate 27 percent more seats in the Canary and Balearic Islands than it did in 2019.
  • Ethiopian Airlines has a new chief executive. The carrier named Mesfin Tasew Bekele its CEO last week, replacing Tewolde GebreMariam, who stepped down due to health issues, the carrier said. Bekele previously had a long career at Ethiopian, but since 2021 he has been CEO of Togo-based Asky Airlines.
  • Asia is gradually reopening after two years of some of the world’s most stringent travel restrictions. Singapore is the latest country to relax its Covid protocols. From April 1, fully vaccinated passengers will not need to take a test on entering Singapore, nor will they be required to quarantine. Passengers still will need to take pre-departure tests, however. Unvaccinated passengers can transit through Singapore as long as they meet the entry requirements of their destination country.
  • The time has come for the U.S. to end its mask mandate for flights and its pre-departure testing requirements for international travel, the heads of major carriers said in a letter to President Joseph Biden. The CEOs argue that the pandemic has entered a new phase, one that is more manageable, and the mitigation efforts from earlier in the crisis are no longer necessary. Moreover, the burden of enforcing the requirements has fallen on their employees, the CEOs said. In particular, the mask mandate has resulted in dozens of instances of “air rage” from non-compliant passengers, with some disputes becoming violent. Southwest Airlines flight attendants are among the groups that support an end to the mandate.
  • After a kerfuffle last year in Quebec when Air Canada CEO Michael Rousseau admitted he couldn’t speak French, the Montreal-based carrier has set up an “Official Languages Branch.” The new division will offer language training in French and English and ensure the carrier complies with Canadian laws that mandate companies be functional in both languages. For his part, Rousseau told Canada’s Parliament that he is now taking daily French lessons.
  • And finally, the IATA Annual General Meeting will go on, just in a different place. Originally scheduled for June 19-21 in Shanghai, hosted by China Eastern, the event now will be on the same dates in Doha, hosted by Qatar Airways.

Edward Russell & Madhu Unnikrishnan

Edward Russell
March 28th, 2022 at 12:01 AM EDT

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