Skift Take

Despite higher fuel costs, the first major land war in Europe since World War II, and the lingering pandemic, Air France CEO Anne Rigail remains optimistic about summer travel demand. In fact, the airline plans to fly more flights to North America, Africa, the Caribbean, and the Indian Ocean than it did in 2019.

Russia’s invasion of Ukraine so far has not dented summer demand for travel between North America and Europe, despite fears soon after Russia’s invasion of its neighbor last month that Europe’s recovering tourism industry could suffer from the fallout, Air France CEO Anne Rigail said at the Skift Forum Europe in London on March 24.

“At the beginning of the war, bookings were paralyzed for a few days,” Rigail said at the event. “We were wondering if [American] passengers would fear coming to Europe because of the war, but we have not seen this,” she said, adding that booking momentum for summer travel has picked back up.

But that isn’t to say the French flag carrier has not been affected by the war, which broke out on Feb. 24, when Russia invaded Ukraine. Fuel prices are rising, and Air France will have to raise fares this summer. Economy-class fares on roundtrip flights to North America could rise by $33 (€30), and in business class by $110 (€100), she said. “It will hurt for sure,” Rigail said.

The fare increases will come despite Air France having hedged — or insured itself — much of its energy costs. Fuel typically is an airline’s second-largest expense, after labor. Unlike most U.S. airlines, European carriers hedge much of their fuel costs. Air France has hedged more than 70 percent of its fuel costs for the first and second quarters, which takes the sting out of rapidly rising oil prices, which soared past $100 per barrel for the first time since 2014 in the immediate aftermath of Russia’s invasion. Although oil prices have retreated from their high of close to $130 per barrel in late February, the price of industry benchmark Brent crude remains at $112 per barrel as of March 24. Hedging “won’t be enough to avoid” raising fares, Rigail said.

Where the war has had a direct impact is on flight times to Asia. Flights between France and North Asia must take a more circuitous route to avoid Russian airspace, adding as many as four hours to a flight to Japan. But Air France, like all carriers that are now avoiding Russian airspace, benefits from an unexpected pandemic silver lining: Because of continued strict travel restrictions in much of Asia, demand between Asia and Europe remains depressed. The longer flight times have not yet translated into passengers booking away from Air France.

Looking Toward a Hot Vaxxed, Sustainable Summer

Still, despite higher fares, the prospect of the war spreading, and longer flight times on some routes, Air France is seeing strong demand for summer travel. In fact, capacity — or the number of flights an airline operates — will be higher than 2019 in several markets, including to North America, Africa, the Caribbean, and the Indian Ocean. Throughout the pandemic, demand for flights to Africa, where Air France historically has had a strong network, the Caribbean, and the Indian Ocean remained resilient, powered by leisure travel to warm-weather destinations and by to visit friends and family. “Except in Asia, demand has come back in every region,” Rigail said.

Bookings to South America are starting to pick up, Rigail said. And demand from North America so far is exceeding 2019 levels for summer travel. Flights to the U.S started to recover in November, after the U.S. reopened to vaccinated travelers and were strong through December, before dipping in January and the first half of February due to the spread of the Omicron variant. “As soon as people can return to flights, they do,” Rigail said.

But the nature of travel has changed, she noted. Travelers skew younger, and leisure dominates, while business travel lags. These younger travelers are more likely to book longer trips that combine business travel with leisure, or “bleisure,” Rigail said.

Sustainability, important to younger travelers, partially informs this change in travel behavior. “Sustainability is changing the way our customers want to travel and how they expect us to tackle global warming,” Rigail said. To that end, Air France is stepping up its investment in sustainable aviation fuels (SAF). It has reduced its greenhouse-gas emissions by 6 percent between 2005-2019 and is on track for a further 15 percent reduction by 2030, with the goal of meeting the airline industry’s net-zero carbon emissions goal by 2050.

But sustainable aviation fuel, though promising, remains a challenge. The supply of the fuel in Europe is “scarce,” and is four to eight times more expensive than conventional fuel Rigail said. Air France gives passengers the option to pay a sustainable fuel surcharge of between $1.10-13.18 (€1-30) per ticket, depending on fare class. The carrier has seen more uptake for this option among corporate travelers, whose companies may mandate sustainable travel. “Leisure travel is not the same,” she said.

A Greener, But Not Faster Fleet

One of the most effective ways Air France can improve its sustainability is by operating newer, more fuel-efficient aircraft. Many airlines around the world took the pause offered by the pandemic to retire older, less-efficient airplanes, replacing them with more efficient types. Air France is no exception. The carrier has ordered more than 30 Airbus A350s for long-haul flights and 60 Airbus A220s for shorter operations. These aircraft are as much as 20 percent more fuel efficient than the ones they are replacing. “More than half our fleet will be renewed by 2025,” Rigail said.

In addition, Air France is cutting back its shorter flights within France. The country last year passed a law prohibiting domestic flights on routes that can be served by a high-speed train in under two hours and thirty minutes. In response, Air France dropped flights from Paris Orly to Bordeaux, Nantes, and Lyons, among other destinations, and is working with the French national rail company, SNCF, to improve connections between flights and trains. Rigail said the carrier has not been too affected. “Our recovery is sustained by our long-haul network,” she said.

In the midst of its fleet renewal, there is one thing Air France will not do: Return to supersonic flights. Air France and British Airways were the only two airlines in the world to regularly offer supersonic flights, on the Concorde from the 1970s to the early 2000s, when both airlines retired the aircraft. “Times have changed,” Rigail said. “Our priorities now are to make air travel sustainable, and it would not be responsible to the younger generation to work on supersonic flight,” she added.

“We want to have aircraft that emit less,” Rigail said.

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Tags: european airlines, France tourism, oil prices, sfe2022, skift live, ukraine

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