Key facts
- LATAM Airlines CEO Roberto Alvo suggested airlines may cut capacity if high fuel prices persist.
- The potential for capacity reductions could extend until 2027.
- Airlines with weaker financial positions and those serving price-sensitive customers are expected to face greater difficulties.
- Supply-chain issues for aircraft and engines are expected to persist for two to three years.
- Higher funding costs are already impacting airline bond prices.
LATAM Airlines Chief Executive Roberto Alvo suggested that the airline industry may need to implement further capacity reductions if the current shock of high fuel prices continues. Alvo indicated that this scenario of reduced capacity could persist if elevated fuel costs remain a factor until 2027. He noted that airlines with strong balance sheets and more premium travelers are better positioned to absorb the fuel shock, while carriers with weaker finances or greater exposure to price-sensitive customers, such as ultra-low-cost carriers, would face more challenges. Alvo also stated that higher funding costs for airlines are already reflected in bond prices, and that supply-chain problems for aircraft and engines are likely to persist for two to three years, forcing airlines to extend the service life of older planes. He added that engine makers have gained pricing power due to shortages, even as airlines absorb the costs of delayed aircraft and engines.