Non-US airlines have dollar exposure in the form of oil prices, aircraft purchase and leasing charges, maintenance costs and sometimes debt, all of which become higher in their local currency when the dollar is stronger.
“It’s painful, buying fuel, buying everything,” Korean Air Lines Chief Executive Walter Cho said of the strong US dollar, trading at the highest level against the won in more than a decade.
“We have a lot of US dollar debt and we have to pay interest on that. Interest is low but at this exchange rate it might as well be 10 per cent,” he said on the sidelines of an airline industry gathering in Doha.
For most non-US airlines, the hit from rising costs far exceeds the benefit from ticket sales to US-based customers converting to more local currency.
Indian low-cost carrier SpiceJet last week warned it would need to push up fares by 10 per cent to 15 per cent due to an increase in fuel prices and rupee depreciation.
Malaysia Airlines Chief Executive Izham Ismail said fuel had typically accounted for 20 per cent of its costs, but that had risen to 45 per cent due in part to the weak ringgit.
US airlines are mostly unhedged and want a low oil price but prefer a weaker dollar because they benefit from a higher conversion rate when they sell tickets in euros and other currencies to foreign customers, Webber said.
Hawaiian Airlines Chief Executive Peter Ingram said the airline was watching the yen, trading at 20-year-lows, as it ramped up flights to Japan, traditionally the biggest foreign tourism market for Hawaii.
“It’s not the binding constraint on demand at this point, but it is something that we’re certainly mindful of since the vast majority of the traffic on our flights, plus or minus 90 per cent is Japanese originating traffic,” he said of the yen. “And so the cost of travelling to the United States is going to be inflated by the exchange rate.”
Airline failures have historically risen at times when an index that combines the oil price and US dollar strength has been high, according to data from aviation consultancy IBA.
IBA Chief Economist Stuart Hatcher said in a webinar last month that strong pent-up demand means there have been few failures this year, but the situation could change once the peak summer season is over.
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