Planning to Fly? War, Pricey Fuel and a Shutdown Are Making It Harder

0:00Harvard Business School Executive Education delivers a world-class learning experience that energizes aspiring and established changemakers. Prepare for the next elevation for your organization and for yourself. Learn more at hbs.me slash breakthrough. That's hbs.me slash breakthrough. Hey, What's News listeners, it's Sunday, March 22nd. I'm Luke Vargas for The Wall Street Journal, and this is What's News Sunday, the show where we tackle the big questions about the biggest stories in the news by reaching out to our colleagues across the newsroom to help explain what's happening in our world. And this week, it's quickly getting more expensive to fly, thanks to rising fuel prices.

0:38The DHS shutdown in the U.S. is making it more inconvenient to fly, and the war in Iran seems to be making it more risky, as international flights try to steer clear of the conflict. And with millions of travelers locking in their summer travel plans, It's enough to make some wonder if it's worth it or safe enough to take to the skies. We'll ask a pair of our aviation reporters. Let's get right to it. I want to introduce Journal Aviation Reporters Ben Katz and Allie Sider. Allie, welcome back from parental leave. And we've gifted you a hectic travel landscape. So you're welcome for that. Great time to be jumping back into work.

1:17Ben, your desk, my desk, they're pretty close. We talk about aviation disruptions pretty much on a daily basis. And the U.S. and Israeli war against Iran is rapidly reordering the world of aviation. We are three weeks into this. But in many ways, it seems as if the situation is actually sort of getting worse than it was at the very beginning when the fighting was at its peak. If we go back to the very start, so February 28th in the Middle East, aircraft flying, all things being pretty much normal. Suddenly, you have the beginning of the strikes, the U.S.-Israeli strikes towards Iran. And immediately we start seeing just airspace across the region shut off, right?

1:54So now what we're seeing kind of a couple few weeks down is a bit of a divide. There's still a lot of airlines in the region, the likes of Qatar Airways, one of the biggest, which is really operating only a handful of flights a day. Others like Emirates, Etihad, they've started to really recover a significant part of this schedule. Last I looked, Emirates was flying over 50 % of its daily flights compared to before the war. British Airways, for example, they've started scrapping flights all the way into May, June, in terms of flights into Tel Aviv in Israel. Cathay Pacific has announced something similar.

2:26But not just that, we're also seeing airlines shift capacity. So making not, you can't really make a permanent decision in aviation, but a long term decision. Lufthansa deciding that it will start flying or increasing its routes to Asia. So you're starting to see the shift in the flow of aircraft, the flow of flights, the European airlines, the Australian airlines looking how can they take advantage of the fact that those massive Gulf airlines are for the most part grounded or at least severely restricted. I want to just talk about safety for a moment, because, again, look at some of the charts of number of daily attacks incoming to some of these Gulf countries from Iran.

3:02It's down compared to the very beginning of the war. And yet your reporting, Ben, is sort of peeling back the lid. And frankly, a lot of people are seeing the footage of some of these massive explosions at sites of energy infrastructure the last few days. And it seems as if the awareness of how dangerous the situation has been and may continue to be is actually increasing with time. So tell us a little bit about what you've been uncovering. I think in terms of the actual threat at play here, you know, the threat of a missile or drone strike interfering or leading to a catastrophic disaster that has pretty much remained the same since the start of the conflict.

3:37The change here is that there is a lot of eagerness from a number of the big airlines to get back into the skies. Now, there's a calculus there, right? There's a risk analysis that they do to decide, is it safe enough to fly? Now, the interesting thing that, you know, we've kind of discovered is there isn't an international standard. There isn't a rule at a United Nations level or even at a global regulatory level that says, do this calculation. That is an appropriate level of risk that enables you to fly. That doesn't exist in terms of security and conflict zones. So what we're seeing is really individual operators, individual airlines, individual governments making their own decisions.

4:13What factors are at play? There's definitely an economic factor. Airlines are losing huge amounts of money by simply not flying. There's also a political component to this. You know, we've seen places like the UAE really trying to project this image that things are quite normal and stable. You know, how all of these dynamics feed into that really affects that risk assessment. Ali, I know American carriers are not as exposed to this conflict, but what are you hearing? I understand the FAA hasn't said much, if anything, about whether airlines should be going through the Middle East. But are we seeing passengers sort of voting with their feet or their ticket purchases, whether they feel it's safe to fly now?

4:51Well, I mean, the U.S. airlines are saying, you know, they're not really seeing a huge change in demand, though, like kind of the flow of passengers and how they're flying, like the routes they're taking, that has been changing, you know, to avoid that airspace. United just said that they're not expecting to go back into Dubai until probably fall. So they're shifting some of those aircraft that would be flying those routes that are going to fly transcontinental U.S. flights. You know, kind of unfortunate for the airlines, they've gotten kind of used to this stop and start, like especially in Tel Aviv, really over the last like three years.

5:23It's been very on and off whether the U.S. carriers are flying there at all. So, you know, like once again, those flights are suspended. Those are pretty lucrative flights for the U.S. airlines. So, you know, they'd really prefer to be flying them, but it's just not something they're doing right now. There's also that really interesting dynamic of, you know, what are the operating costs? How has the conflict actually affected the money making side of the aviation industry? So, you know, we'll get to fuel prices, but there are huge swathes of airspace across the Middle East that are no longer available.

5:51And there are routes over Iraqi airspace between Iran and Israel that, you know, that airspace is closed now. That used to be an incredibly important flight corridor. So we're seeing airlines having to reroute around those areas, which adds potentially hours to a flight, which is additional costs in terms of crew, in terms of fuel, you know, delays at airports and things like that. So it's really a difficult ballet, I guess, for how they do this. And it's kind of like a shrinking of the skies because this has been, you know, airspace closures have been kind of mounting for the last couple of years.

6:21was Russian airspace. And that kind of created some economic conflicts, I guess, between the U.S. carriers that are not allowed to traverse Russian airspace and other airlines that are. But, you know, this conflict is sort of coming as the skies are already getting, had already been smaller for the last couple of years in a lot of ways as airlines kind of navigate around these conflict hotspots around the world. We've got to take a very short break, but when we come back, we will talk about the inconvenience and cost of flying now amid a partial government shutdown in the U.S. and rising fuel prices.

6:52Stay with us.

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7:34Ali, the Middle East is a world away for many American travelers. The disruptions that Ben in particular has been talking about are more directly relevant for people traveling between Europe and Asia and going to Africa as well. But the economic effects of the war are looking very global, especially when we start looking at costs. What are we seeing? The price of jet fuel has skyrocketed just the last couple of weeks, nearly doubling. That's a huge added cost for airlines. Of course, it tends to be one of their largest costs just behind labor is fuel costs. And just the amount that they have to spend to kind of fill up their tanks on their aircraft has just gotten massively more expensive, which is sort of a big, puts a big question mark on the rest of the year.

8:12And yet it does seem like people are booking now, right? There's almost this fear of higher prices is starting to translate into people kind of pulling the trigger now on trips for the next few weeks and months. Yeah, I think that's one of the big questions. For now, most of the airline CEOs are projecting a lot of optimism. We heard from a lot of them at an investor conference recently, CEOs of Delta, United American, all talking about just this really resilient demand for travel. And as long as demand remains high, fuel prices, high fuel prices for airlines are pretty manageable, they'll just pass those costs along to consumers in the form of higher fares.

8:46And the question is, how long are fuel prices going to remain high? Will consumers start to feel the pinch who are feeling the pinch in other parts of the economy, high gasoline prices? Will they kind of start changing their travel plans? And yeah, is the demand we're seeing kind of just people trying to get ahead of high fuel prices, pulling forward their bookings, I better book my travel now before costs go even higher? Yeah, and if I can jump in to make a quick plug for another one of our team's podcasts, WSJ's Take on the Week. They've got a new episode out today where Natasha Kanova, the head of global commodities research at J.P.

9:19Morgan, suggested exactly that. My advice to everybody there, guys, whoever is planning summer vacations, you have to buy your tickets today. Please do not wait until May because the price is already much, much higher. Ben, I'm curious, what's the international picture there? Ali's been describing this push and pull between fuel prices and demand. We're already seeing those prices weigh on that demand. So for example, SAS, it's quite a prominent Scandinavian airline. They announced just this last week that they're having to scrap hundreds of flights because of the cost of fuel. We're being really strategic about it to kind of maintain connectivity.

9:56But the point here is that they don't see demand being able to keep up with the fuel surcharge effectively of having to fly with them. So far, we haven't seen too much of that. And New Zealand is another that has said, you know, we don't think our customers will be able to, you know, pick up the entire cost of this. So they've started to reduce some capacity. The big question is, at what point does do those cancellations start affecting some of the really bigger airlines? And Ali kind of adding insult to injury here, making all of this more confusing for people is that if you do want to fly, and you've ponied up the money to make it work for you, for the time being, at least you're lucky to find the whole experience worse than usual because of U.S.

10:34politics, basically. Yes, once again, and not for the first time and probably not for the last, U.S. airline flyers are kind of caught in the crosshairs of our political situation. We've seen really long lines at TSA the last couple of weeks as the Department of Homeland Security is in the midst of a government shutdown. So TSA screeners are not getting paid. They've missed a paycheck and some of them are calling out or perhaps even quitting. And that's naturally leading to some log jams at our airport security checkpoints. I mean, right now, you know, I don't want to give the impression that every airport is a disaster.

11:08There really are kind of localized hotspots. One airport will just be terrible or a couple of airports around the country and everywhere else is totally fine. I mean, the problem for travelers is that it's pretty difficult to predict in advance where the trouble spots might be. So, you know, that of course creates a lot of stress for the traveler. And we've sort of seen this rotating around the country, the longer the shutdown goes on, just the worse it will get. In terms of cost, it sort of depends how long the conflict lasts. A lot of European airlines are hedged and protect themselves against fuel price swings.

11:39That really isn't the case in the US. Most airlines abandon their hedging strategies. Years ago, Southwest Airlines, which was the big holdout, hedged for years and last year said enough is enough. They just felt it was too expensive. They weren't getting a benefit. So the protection for U.S. airlines is really their capacity. How much are they going to fly and how much are they going to charge for tickets? So their goal is to pass through those costs pretty quickly. I've been speaking to Wall Street Journal aviation reporters Ben Katz and Allie Sider. Ben, Allie, thank you both so much. Thanks.

12:09Thanks so much. And that's it for What's News Sunday for March 22nd. Be sure to check out that conversation I mentioned earlier from WSJ's Take on the Week because it gets really in-depth on oil and the broader energy markets from an investor's perspective. We'd love to link to that in our show notes. Today's show was produced by Daniel Bach and Hattie Moyer with Deputy Editor Chris Zinsley. I'm Luke Vargas, and we'll be back tomorrow morning with a brand new show. Until then, thanks for listening.

12:42This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. But what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. Listen at schwab.com slash Washington Wise.