(Reuters) – Airlines are facing a number of growing costs in the coming year, including higher insurance, fuel, labor and leasing prices, said the CEO of the large aircraft rental company SMBC Aviation Capital on Thursday.
Dealing with these will be the industry’s biggest challenge over the next 12-24 months, despite a recovery in demand, Peter Barrett told the Airfinance Journal conference in Dublin.
“If I had to choose a topic that will be a challenge for the industry over the next 24 months, it will be the cost base and how elastic the demand will be in relation to it,” said Barrett.
After years of low-interest airlines, Barrett said it was inevitable that rising costs of money would eventually be passed on to the airlines̵7; rates for jet leasing.
The US Federal Reserve raised interest rates by 50 basis points on Wednesday – the largest single-day rise since 2000 – in an attempt to control rising prices.
While demand for medium-haul flights and narrow-body jets is bouncing back after the covid pandemic, rising back-to-back funding costs are looming in Dublin. Landlords, including the industry’s third player SMBC, own more than half of the world’s commercial passenger jet fleet.
In addition to interest rates and inflation, participants warned of pressure on airlines from fuel and insurance costs linked to Russia’s invasion of Ukraine. Mr. Barrett said that higher insurance prices for landlords can also affect rental prices.
Airlines whose balance sheets are plagued by the pandemic are likely to turn increasingly to leasing companies and focus on operating instead of owning fleets, predicted Mr. Barrett.
Leasing companies themselves may face higher costs because inflation drives up jet values, but inflation is largely supportive in the long run for “hard assets” such as aircraft, he added.