If the price of oil keeps skyrocketing as it has over the past several days, the Federal Aviation Administration may well find that its much-discussed plan to reduce flights at Chicago’s O’Hare International Airport this coming summer will be moot.
Earlier this month, we wrote about the battle between American and United Airlines at the big airport, with the airport’s competitive gate-allocation policies motivating each megacarrier to add departures to protect its turf. We argued that O’Hare’s dual hub status is vital to this city’s economic future. But the airport has finite capacity and American has been sounding the alarm that its rival had added so many new flights in order to hang onto its gates, there were more flights on the books than O’Hare could handle on the ground.
My, how the world has changed.
Jet fuel is the airlines’ biggest expense after labor costs, and it’s more than doubled since the beginning of the war in Iran. Much of that increase — reportedly, a year-over-year change of $742 to $1710 for a metric tonne of jet fuel — is due to Iran’s fully predictable closure of the Strait of Hormuz, the watery choke point essential to shipping oil to the market. Aside from the eye-watering increase in the price of oil, making many flights unprofitable, European media are warning of potential jet fuel shortages in parts of Europe and Asia, raising concerns that some routes could become harder to operate if supplies tighten. And thanks to the missiles soaring over the Middle East, many long-distance flights now have longer routings, burning more fuel, as airlines try to avoid flying over some very unfriendly skies.
On Tuesday, Reuters reported that Korean Air (a longtime O’Hare carrier) will enter “emergency management mode” from April due to the rising jet fuel prices driven by the war in the Middle East. It hardly will be alone. Across the industry, airlines are staring at very different fuel costs from what was in their business plans. Fuel surcharges are likely to increase and departures likely to sink in number.
When we met with United’s executives last month, they reminded us that hedging fuel prices (and paying a premium to do so) is no longer something major carriers routinely do. That works out fine in normal times, but in this particular crisis that means the airlines are taking it on the chin. And since individual airfares tend to be driven by what the market will stand rather than the actual cost of flying, the airlines’ ability to raise fares is more limited than most people realize.
The most likely solution will be not to fly as often to as many destinations.
Other factors are affecting O’Hare, too.
Southwest Airlines, which has about 20 departures a day from the corner of Terminal 5, is pulling out of the airport entirely, citing the complexities of doing business there and deciding to concentrate on Midway International Airport, where it rules the roost. That was a surprise, but it’s looking more and more like a smart call. Either way, those flights are gone.
Several of United’s flights from O’Hare to Middle East hotspots like Dubai, UAE, and Tel Aviv, Israel, already are on hold, as are several flights from the major Gulf carriers who have strong presences at O’Hare. So that’s more of the overscheduled flying already disappearing.
Some newly arriving airlines at O’Hare made their plans before the war. Beginning in June, EgyptAir plans to fly three times weekly from Chicago to Cairo, a coup for the airport, and Philippine Airlines separately has said it plans to start the first ever nonstop flights between Chicago and Manila this summer, potentially a helpful new route for long-haul Chicago travelers who want to steer clear of the likes of Dubai, and Doha, Qatar.
But at this level of fuel pricing, it’s likely even the fierce rivals that are United and American will be able to find flights they now are willing to do without. They may well be doing so without the FAA’s prompting, just to keep their heads above water.
Add to the jet fuel crisis the likely reduction in passenger demand from the knock-on impact of oil prices.
If people are spending more to fill up their vehicles with gas, they also are less likely then to fly somewhere expensive on vacation. And while the highly publicized Transportation Security Administration hassles at the airport are on their way to resolution (and not before time), but they too have been a major disincentive for anyone who does not have to fly for work.
Reportedly, the FAA has been seeking to reduce O’Hare flights to about 2,600 per day, down from the 3,080 on the previously planned schedule. Up to now, it’s been a pitched battle to determine in what proportion flights should be removed. But under this scary new scenario, airlines are likely to be reducing them anyway.
So the FAA may not have much to do at all.
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