332 - Guest Co-Host Christina Cassotis. Guest: Khalid Usman, Partner, Oliver Wyman

Summary

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Airlines Confidential Podcast – Episode 332

Host: Scott McCartney
Co-host: Christina Cassotis
Guest: Khalid Usman, Partner, Oliver Wyman
Date: April 8, 2026

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Episode Overview

This episode provides a frank and data-driven look at the ways soaring jet fuel prices, the ongoing Middle East conflict, and global supply chain issues are reshaping airline economics, networks, and customer experiences worldwide. Diving deep with guest expert Khalid Usman of Oliver Wyman, the show uncovers the pressures facing ultra-low-cost carriers like Spirit, analyzes new airline fee hikes and airport operational bottlenecks, and discusses who stands to win and lose in this “new aviation economy.” The conversation features a particularly nuanced discussion of technology, regulation, and social dynamics from both industry and traveler perspectives.

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Key Discussion Points & Insights

1. Spirit Airlines’ Reorganization and Bankruptcy Challenges

• Context: Spirit canceled a planned auction of 20 Airbus jets for lack of bidders; it’s trying to shrink from 214 to about 80 aircraft during bankruptcy restructuring. (04:02)
• Jet Fuel Cost Shock: The war in Iran has doubled jet fuel prices, turning a breakeven plan into further losses.
  • “Jet fuel is roughly 25% of an airline’s costs…now it’s having to pay the same $250 million for jet fuel each quarter, but it only had planned on paying half that much in its reorganization plan.” (05:20, Scott)
• Broader Industry Implication: Survival of ultra-low-cost competitors like Spirit is critical; liquidation is unattractive because high fuel prices make selling parked aircraft less lucrative too. (08:15)
  • “If we’re going to see airlines start parking airplanes because they’re no longer economical, liquidation…doesn’t look any better at higher fuel prices.” (08:15, Christina)

2. Industry Response: Bag Fee Increases and Market Elasticity

• Fee Hikes: JetBlue (by $4–9) and United (by $10) have raised checked bag fees to offset fuel costs; United’s could reach $50. (09:00)
  • “United takes in more than a billion dollars a year in baggage fees…increase that by 25%, [and] you’re talking another $250 million. But that’s not going to begin to cover the higher fuel costs.” (10:45, Scott)
• Why Bag Fees Instead of Fares?
  • “It’s more palatable to put it through that way than raise the fare by $20.” (12:00, Christina)
• Market Sensitivity: Everyone’s watching for when perseverance tips into demand erosion.

3. The Controversy Over In-Flight Phone Calls

• British Airways' Move: BA plans to allow in-flight voice and video calls with the arrival of fast Starlink Wi-Fi. (13:00)
  • “Put a sock in it. That’s directed at British Airways, which just announced that it will allow voice and video calls in-flight…Chatty passengers will have to use headphones and will be asked to keep their voices low. But all I can say is, ‘ugh.’” (13:00, Scott)
• Potential for Social Tension:
  • “You create more fights for flight attendants to have to referee...Imagine a noisy neighbor on a long flight. Serious issue for passengers.” (13:15, Scott)
• Personal Experiences: Christina shares the memory of a sensitive call with her dying father from an old TWA air phone, defending the value of rare, necessary calls—but draws a line at routine in-flight chatter. (14:30, Christina)
  • “Mostly, I don’t want to be on the phone when I’m on a phone.” (17:51, Christina)
• Social Experiment: Both hosts agree this is “a massive social experiment” that could be problematic but concede technology and etiquette will shape outcomes. (20:06)

4. San Francisco International Airport (SFO) Arrival Reductions

• FAA Changes: SFO’s arrival rate will drop from 54 to 36 landings per hour permanently due to safety concerns over closely spaced parallel runway operations. (20:34)
  • “You just took out a third of the…capacity of the airport.” (24:48, Scott)
  • “It’s not just about the San Francisco economy; it’s about the US and the global…[you’re] taking something away in terms of access and connectivity.” (26:25, Christina)
• Wider Impact: This will ripple through the United network, the Bay Area economy, and global aviation.

5. Major Industry Leadership Movements

• Willie Walsh will leave IATA for Indigo Airlines; Peter Elbers (ex-KLM, ex-Indigo) speculated to be a contender for the now-open IATA position. (29:24)
  • “This felt like really big news because…I know this is going to be really fascinating and it would not surprise me to see Peter at IATA.” (31:32, Scott)
• Kevin Burke (ACI-NA president) is retiring, opening another high-profile slot. (29:24)

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Expert Interview: Khalid Usman, Oliver Wyman (35:49–66:49)

Industry Impact of Middle East Conflict

• Magnitude of Disruption:
  • “Roughly 20% of global airline capacity…is impacted. 13.5% directly exposed to the Middle East; 6.5% indirectly through airspace diversions and reroutings…We are not talking about a marginal disruption—this is one fifth of the global airline capacity.”* (37:04, Khalid)
• Network & Demand Effects: Airlines are rerouting, trimming frequencies, and shifting demand flow (e.g., more nonstop long-hauls, some hubs bypassed). (40:24)
  • “Destinations like Greece, Italy, Spain, Portugal…are all seeing spike in booking patterns as travelers are looking at alternate destinations.”* (44:16, Khalid)
• US Demand Resilience: Despite TSA operational chaos, March demand was robust—just a marginal dip attributed to long lines. (46:47)

Fuel Price Shock Scenarios

• Modeling the Scenarios:
  • “If oil stays at $100, increase in fuel cost results in more than $75 billion global airline fuel bill…could cause at least a 10–12% increase in fares…with annual increases of 5.5%.” (48:35, Khalid)
  • Anticipated demand drop: 5% during spike months, 3% annually.
  • “This gets the global airline margins under pressure by 3 to 4 percentage points and will squeeze the profits globally by about $40 billion.” (51:00)
• Not All Airlines Lose Equally:
  • “There will be winners and losers coming out of it…lower cost carriers will get impacted more…for carriers with strong balance sheets, it’s a chance to retain strength.”* (53:51)

Pre-Conflict Industry Health

• Margins and Cracks:
  • “Margins are holding up, but some cracks have been forming underneath. Costs have been growing faster than revenues. That’s usually how margin compression starts.”* (56:34)
  • Pre-conflict, fuel prices were down, but cost discipline was waning.

Long-Term Risks if Conflict Continues

• Supply Chain Threats:
  • “The conflict is already disrupting oil flows and maritime shipping routes…direct implications for aviation as critical components, engines, parts move through these networks.”
  • “Sustained disruption…can cause fuel shortages in some parts of the world…an emerging risk.”* (59:45–63:39)
• Industry Resilience:
  • “Airlines have shown time and again…they can actually manage through volatility and emerge stronger. It would not be any different this time.”* (65:45)

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Notable Quotes & Memorable Moments

• On allowing calls in flight:
  • Scott: “Put a sock in it. That’s directed at British Airways…all I can say is ugh.” (00:50)
• On industry adaptation:
  • Khalid: “Aviation is fundamentally a globally interconnected system. Even if you are not flying through the Middle East, you are still exposed.” (37:45)
• On economic history:
  • Khalid: “In the past 25 years, the industry globally has seen 13 profitable and 12 unprofitable years.” (52:29)
• On SFO reduction:
  • Scott: “You just took out a third…of capacity of the airport.”—(24:48)
  • Christina: “You’re taking away a system that has worked safely for 20 years. You better have a good reason.” (26:43)
• On airline resilience:
  • Khalid: “The airlines have shown…they can manage through volatility and emerge stronger. It would not be any different this time.” (65:45)

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Timestamps for Key Segments

• [04:02] Spirit Airlines bankruptcy update & jet fuel math
• [09:00] Checked baggage fee increases: JetBlue & United
• [13:00] British Airways decision to allow calls in-flight—debate
• [20:34] SFO landing reductions & national economic impact
• [29:24] IATA and ACI-NA leadership moves
• [35:49] Oliver Wyman’s Khalid Usman: global impact of Middle East conflict on aviation (Interview segment start)
  • [37:04] Industry exposure and global network effects
  • [48:35] Fuel price modeling and scenario analysis
  • [53:51] Forecasting industry winners and losers
  • [56:34] Pre-conflict financial health
  • [59:45] Long-term operational and supply chain risks
  • [65:45] Outlook and industry resilience
• [68:53] Listener mailbag: feedback on route profitability and ICE/airport staffing politics

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Conclusion & Takeaways

• The industry’s robust demand is colliding with severe cost pressures from geopolitics and fuel.
• Airlines are responding with targeted fee hikes and network cuts; ultra-low-cost models are particularly at risk.
• The Middle East conflict is disrupting a substantial fraction of global air capacity with far-reaching effects.
• Regulatory, technological, and social changes (from parallel landings to in-flight phone calls) pose further uncertainty.
• The sector’s resilience and adaptability, as emphasized by Khalid Usman, remain essential for navigating continued turbulence, but structural consolidation and new competitive dynamics are inevitable.
• “Winners and losers”—a recurring theme as the business lurches from crisis to crisis.

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For anyone seeking both the practical realities and deeper data beneath today’s aviation headlines, this episode is essential listening.

Transcript

[Scott McCartney]

Airlines confidential with Scott McCartney is made possible with support from RTX Collins Aerospace,

[Khalid Usman]

Pratt and Whitney and Raytheon. Connecting and protecting our world.

[Scott McCartney]

RTX.com infinity Flight the leader in Cadet

[Khalid Usman]

Academy flight training programs infinityflight.com Ontario International

[Scott McCartney]

Airport in Southern California state SoCal so Easy flyontario.com the executive MBA in aviation

[Khalid Usman]

at the University of Colorado Denver business ucdenver.edu and by Cirium, the world's most

[Scott McCartney]

trusted source of Aviation Analytics. Cirium.com we also welcome your business support.

[Christina Casodis]

Contact us at airlinesconfidential.com welcome to Airlines Confidential. I'm Scott McCartney and I'm going to begin this podcast in the most non conversational and least friendly way by declaring with all proper British decorum, put a sock in it. That's directed at British Airways, which just announced that it will allow voice and video calls in flight when it gets very fast Starlink WI FI service installed in its aircraft. More on that later though I guess I have made my view clear. What say you, Christina Cosodis, welcome back.

[Scott McCartney]

Well, thank you. It's always great to be here. It's really interesting. I had the same opinion. I do have a story around that and I am going to see how you feel about it.

[Christina Casodis]

Excellent.

[Scott McCartney]

Yeah. All right, so we have a lot to talk about, which is why let's save the British Airways discussion for a little bit later. A couple of high profile management changes to talk about, which let's preview it. I think it sounds like Freaky Friday. And in addition, JetBlue and United have both raised their checked baggage fees. Spirit Airlines has asked for a delay in getting its reorganization plan approved. And both of these things stem from the same cause, of course, which is higher jet fuel prices, which are truly disrupting the industry and are going to have significant impacts on a whole lot of us.

[Christina Casodis]

Yeah, I think it's really getting serious. We're also seeing some developing shortages of jet fuel in some parts of the world. So to help us get a clear picture on what's going on, I'm going to talk this podcast to Oliver Wyman partner Khalid Usman, who has done a lot of data diving and analysis of the changes taking place right now and what's ahead for the industry. We'll talk about passenger demand, we'll talk about route network changes. We'll talk about winners and losers in this new aviation economy with oil prices above $100 a barrel and spoiler alert, it's really pretty sobering. But I think the Oliver Wyman information will really help bring clarity for all of us about what's going on. So let's talk about Spirit Airlines first, because listeners may have missed some of the news last week. Some of this came out of the court filings, which I dug into. On Thursday, Spirit filed notice with the bankruptcy court that it was canceling its planned auction of 20 Airbus jets because no bids had been received by the April 1 deadline. Listeners will recall that Spirit already had what's called a stalking horse bid, a minimum, if you will. The minimum was $533.5 million. The bid for 13A 320s and 7, 832 ones came from an entity called CSDS Asset Management, a firm that buys and sells and leases commercial aircraft. So with no bids higher than 534 million, CSDS will get the airplanes. This is all part of Spirit shrinking its fleet from 214 airplanes way down to about 80 airplanes. And on April 1st, and this is no April Fool's story this week, by the way, Spirit asked the bankruptcy court in New York to give it another 90 days to file its reorganization plan. This really isn't a surprise. This is a big, complicated reorganization, and Spirit was really trying to power through it quickly. But it's also significant because clearly there are concerns about the reorganization plan. As it's written today, Spirit has put this plan forward with its creditors and needs to get approval of the creditors. That concern, no doubt, is the near doubling of jet fuel prices. Jet fuel is roughly 25% of an airline's costs. In Spirit's third quarter last year, that was the last quarter that they publicly reported with the SEC, Spirit spent $253 million on jet fuel, which was 23% of operating costs. So do a little back of the napkin math. Spirit is half the airline it was then, let's just say in rough terms, and now it's having to pay kind of the same 250 million for jet fuel each quarter. But it only had planned on paying half that much in its reorganization plan. Suddenly, the war in Iran is costing spirit an extra $100 million or so per quarter, $400 million a year. Pretty soon, we're talking real money. And the reorganization plan most likely goes from breaking even after a year or two to continuing to rack up losses with the higher fuel prices. In other words, it doesn't work with higher fuel prices. So Spirit's best hope now is that the war ends quickly and jet fuel prices come down. Spirit said in its court filing that it was continuing to negotiate with key creditors and constituencies, including lenders providing its revolving line of credit who had not previously agreed to the reorganization plan and certain aircraft lessors which apparently have not agreed. And it's labor unions which get a vote in this. I think Spirit's mostly buying time because there aren't really any good other options. What do you think?

[Scott McCartney]

Well, first of all, what I think is I'm all for buying time because Spirit serves a really important role in the overall national transportation system. It's an ultra low cost carrier. It serves a very specific market segment. And I worry about them going. I mean, we have Breeze, we have sun country, we have Allegiant, and there's that merger moving frontier availo. So I think that there's something to be said for that, that business model in the market and they've been a great partner to us all the way through. I think that it's going to be tough given the current market conditions and the fact that fuel just keeps climbing. I don't know how they can make it work when their turnaround was based on much lower fuel prices than we're seeing today and no, no stabilization assurance in sight. Yeah, that said, I, you know, fingers crossed for a miracle. But I think it's. It's going to take something like that.

[Christina Casodis]

Yeah, yeah, it's really tough.

[Scott McCartney]

Yeah, yeah, it is. And a lot of good people who work there and I think, you know, that's always, that's. It's got to be tough. It's got to be tough to, to still be there watching it happen. But, you know, I do appreciate that it's a crazy environment to be navigating this through. This isn't sort of a normal economic cycle. So.

[Christina Casodis]

No. And you know, one of the curious things, the alternative gets tougher too. Right. Because if we're going to see airlines start parking airplanes because they're no longer economical, well, that makes the liquidation possibilities for Spirit, when the creditors look at it, they say, okay, are we going to get more money back from liquidating or get more money back from letting these guys fly? And liquidation doesn't look any better at higher fuel prices.

[Scott McCartney]

I think I saw something that Lufthansa was talking about grounding as many as 40 aircraft due to this spike costs. Right. So this is coming is my guess.

[Christina Casodis]

Absolutely. Yeah.

[Scott McCartney]

This is what I worry about as a spoke. As a spoke market. You know, this is where it hits first, is places like us. And that's what I get concerned about. You know, we had a great start to the year and now it feels like, oh, no, no, no, please, we don't want to see the impacts of this because it really, it sets us back in terms of our ability to take care of our economy. And overall, I would say nationally, you know, when, when aviation is curtailed, the economy is curtailed. And I know it's only one impact of what's going on, but it's huge. It has so many, it has so many tentacles. Oh, yeah, yeah. Okay. The other oil related move had to do with checked bag fees, which is right in line with the conversation we're having, which is how to mitigate what's going on. JetBlue said it was raising its baggage fees by between $4 and $9. And United said it was raising its fees by $10 across the board. For United, that means the fee to check the first bag could be as high as $50, depending on when you pay the fee. Of course, paying at the airport at check in is the most expensive. And this fee applies to domestic flights, trips to Mexico, Canada and Latin America. Raising baggage fees is a bit easier for airlines than raising fares. These higher fees aren't likely to cause ticket buyers to switch airlines, at least not as much as raising fares would. And the additional dollars can be significant. United takes in more than a billion dollars a year in baggage fees, according to some estimates. So if you increase that by 25%, you're talking real money, like another $250 million. But that's not going to begin to cover the higher fuel costs. Last year, United spent more than $11 billion on jet fuel. That means if this increase lasts, the hit to United, which is a major huge global carrier, is in the billions, not millions. And Delta, another one of the big three, by the way, is still at $35 for its first checked bag, at least as we're recording this. And of course, that could go up any day. It's really interesting to me because I know at the JP Morgan conference just a couple of weeks ago, the airlines were talking about the fact that they saw demand as being pretty strong. And I just wonder how long they're going to hold on to that opinion and how much of this consumers are willing to absorb before they start changing plants.

[Christina Casodis]

Yeah, yeah, no, it was high fuel prices that led to the creation of bag fees at least in the US Years back. And you know, they worked for airlines then, but yeah, you're already collecting $40 a bag at United and at the highest rate for the first checked bag. And so now you go to 50 and there is an incremental bump there. But yeah, it's not going to save it on the other hand, that passenger who's paying $10 or more outbound and return, presumably, you know, you can see how it's more palatable to put it through that way than raise the fair $20.

[Scott McCartney]

Well, it's gonna. The. The elasticity of demand in this environment is what everybody's looking at, right? Yeah. And candidly, you know, what's. What's on the supply side? What can they really absorb? What are they going to be able to recover to. To cover the Delta that nobody expected when it comes to fuel?

[Christina Casodis]

Yeah, yeah, yeah, it is. It is really tough.

[Scott McCartney]

Yeah.

[Christina Casodis]

So a couple of disturbing news notes, Christina, and this one we already previewed. Maybe this is welcome news to some, but I think it's disturbing to others, certainly to me. But British Airways says that when it gets Starlink WI FI service, it will allow voice and video calls. Chatty passengers will have to use headphones and they will be asked to keep their voices low. But all I can say is, ugh. Only one other airline allows this that I know of, and that's Qatar. I just think it's a horrible idea. You create tensions between travelers. We all saw how that spilled into violent confrontations on the airplane over face masks during the. Shortly after the pandemic. You create more fights for flight attendants to have to referee. I think it's a serious issue for flight attendants. Imagine a noisy neighbor on a long flight. Serious issue for passengers if. If I have to listen to your deal negotiations, why shouldn't you have to listen to my music or my detective show or whatever? And do we really need this when we can text and we can email on the airplane? I just think it's a really bad idea. I'm curious to hear what you think.

[Scott McCartney]

Okay, you keep going and tell me when I can.

[Christina Casodis]

Let's talk about this one first because I know you've got some feelings about the next one, too.

[Scott McCartney]

Yeah. So here's what I'll say. And it's funny because when I heard that, I thought, really, I had just. Actually had just been at B.A. a couple of weeks ago. Sean had invited me, was so flattered to address his leadership group biannually. They do a big off site. And I went in and talked to the leadership group about what we had done at Pittsburgh and met a whole lot of people. And I thought, oh, wow, this was never previewed. So it felt like, well, I'm sure we weren't there for the whole day. Let's be clear. I'm not sure I was there for half the day, but I was shocked. And my first reaction was yours. And then I thought about what happened to me back in 1999. I was a consultant with SHNE. I was heading to my client in Little Rock, Arkansas. And in those days, I didn't have a cell phone. 1999, and we were still using payphones. Those were still in airports. And I got on a TWA flight, was going to connect in St. Louis, get into Little Rock, and. And I called my dad, who was dying of lung cancer, and I said, I'm coming over tonight. I'm going to take a leave of absence. You know, he had been diagnosed just 18 days earlier, and, you know, he's a pilot. He was 58 years old. He had been in great health. He was. All of a sudden, he was six, sick. I'd spent a lot of time with him, had talked to my husband and said, I need to take a leave of absence. I just need to be around for this. And I called him from the plane, and remember the earphones TWA had? And I picked up the air phone, and I probably paid, you know, $1,000aminute, but I didn't care. And I just said, dad, you know, I. I'm heading to Little Rock. It's a day trip. When I get off the plane, I'm going to come over and I'm going to stay for a while. I'm going to take a leave of absence. And he said, thank you. And he said, I love you. I said, I love you. And he said, it's a beautiful day to fly. I landed in Little Rock. I got the phone call. I got the overhead announcement. Please pick up the white courtesy phone. And it was my husband saying that my father had died.

[Khalid Usman]

Oh, wow.

[Scott McCartney]

And so. No, but I know that's. So that wasn't an email or a text, Scott. And I would say it's so interesting because I have never forgotten that phone call. I was also doing what I've seen a lot of people do in Japan. I had my hand over my mouth as I was talking because I didn't want 15 people to hear me. And I think that what we all deal with in society, people walk into an airline lounge with a conversation with on FaceTime and no earbuds in. And I just think, why do we have to listen to this? So I love. There are a couple of airlines that are making it very clear that nobody should have to listen to your stuff. So I hope that the training goes into not having to listen to some person having a robust conversation and that the flight attendants have the ability to say, you have to get off this call now. You're being too loud. But I agree it definitely will have some implications. Mostly I don't want to be on the phone when I'm on a phone.

[Christina Casodis]

Right, right.

[Scott McCartney]

Like my, it's my happy place, you know, 14 hour trip where nobody can reach me except by text is awesome.

[Christina Casodis]

Yeah. I appreciate your story. Your phone call with your dad.

[Scott McCartney]

I know.

[Christina Casodis]

Heartbreaking and heartwarming. My, my one experience was, was, was not nearly. I was going on vacation with the family and had one story that was running, I guess, that night and ended up having to call an editor from the air phone and we ended up in a huge fight.

[Scott McCartney]

Were you the jerk screaming on the phone?

[Christina Casodis]

I was the jerk screaming on the phone, yes. And my children were mortified and horrified and, you know, vacation got off to a very bad start and they still, to this day, don't let me forget that, that I was the guy on the phone screaming.

[Scott McCartney]

That's a really, that's, that's very funny. We had two very different experiences. I read. Do you ever read the View from the Wing Gary left? Because sure. Yeah, yeah. His, I read what he had to say about it and what he was saying was, first of all, it's about time we have the technology and the jerks are going to be jerks, but they're jerks anyway. So that's why I was asking, were you the jerk on the plane? Yeah, but hopefully most people won't do that, I guess. Look, I'm with you, but back in the day, they put those earphones on the planes and they didn't seem to have a problem with it then. I think that it just didn't work because they were so expensive.

[Christina Casodis]

Right. Well. And you know, we get a little taste of it, you know, when you land, right? Ding and ding and everybody gets on fire. I tell you, the best, you know, in the category of I know everybody's listening, landed one day and this guy gets on his phone and everybody hears him say, hey, honey, change the seat, change the sheets, send your boyfriend home. I got an earlier flight.

[Scott McCartney]

Oh, good grace.

[Christina Casodis]

And the whole plane cracks up laughing.

[Scott McCartney]

Yeah, no, I, I was gonna say, I, I mean, maybe it will prevent some of that. I don't know. I think it's a massive social experiment and let's see. But I, I, that was your reaction. Was my first reaction. I will say. Your reaction was like your reaction of ug was my first reaction. Like, I don't want to listen to somebody else's conversation. But candidly, you know, you get a. A party group on a plane, you're listening to it anyway, so who knows?

[Christina Casodis]

All true. All true. All right. Second bit of disturbing news. We should all expect some serious delays at San Francisco International Airport, especially this summer. The FAA is lowering the arrival rate by 1/3 from 54 down to 36 landings an hour. The FAA cited repaving at the airport, but more importantly, a decision to end parallel landings, including clear weather. The FAA said the reduced rate would remain in effect once the repaving is completed. So that's not really the factor here. I'm not sure what is. United and other airlines said they were talking with the FAA to work this out. It's unclear why the FAA is no longer comfortable with parallel landings at sfo. The agency noted that it has never allowed parallel landings in low visibility conditions. Landings will have to be staggered on the parallel runways there. The 28s, 28 left and 28 right.

[Scott McCartney]

This is a big deal.

[Christina Casodis]

Yeah. Some background. Those parallel runways, 28 left, 28 right, they're only 750ft apart, centerline to center line. And normally you need 4,300ft for parallel runways to have simultaneous parallel approaches, such as at Dallas, Fort Worth International. Why? They're spread out so much. But precision radar systems developed decades ago have allowed parallel landings at closely spaced runways. It's used around the world. It's been in place at SFO for more than 20 years. The radar scans faster and provides controllers with more accurate locations of airplanes. Plus, the aircraft have to be able to see each other and confirm that. So parallel landings at SFO are only allowed in visual conditions. Question is, have there been problems at SFO that triggered a stop to parallel landings? None reported there so far. Is there a problem with the technology or just discomfort within the faa? Look, if there is a safety concern, by all means the FAA should discontinue an unsafe practice. But it should also get to work on better technology to allow it, because lots of airports, especially sfo, need this. Once again, I guess this is an example of how better technology can allow more capacity. I hope there's something real behind this and it's just not the administration punishing San Francisco. Who knows? What do you think?

[Scott McCartney]

Well, a couple of things. First of all, there's a. There are quite a few airports in the US that have less than 4,300ft on their parallels, center line to center line. I mean, where there's a. And there's a whole bunch of airports. DFW, Denver, US that have at least 5,000, if not more feet in between the parallel runways, which means we can all allow for simultaneous landings in any weather. But there are a number of airports that are tremendously land constrained and had to get the exception to that rule. And they have been operating that way for a really long time. So to your point around technology, it's not just that it allows more capacity, it allows the economy to work the way it should. When you start to restrict capacity and you start to restrict that activity, that restricts the economy, the local and the global economy's ability to grow. I mean, San Francisco is a major connecting point for United into Asia. It's going to have an impact on the system and it already has. And I think that whenever we're looking at something like that, to your point, it's really important to make sure that we, we find a way to get back to. I think they're going from 54 to 36 arrivals per hour to get back to those 54, because that's what the market needs.

[Christina Casodis]

No, you just took out a third of the 33% of the capacity of the airport.

[Scott McCartney]

It's a really big deal. I mean, look, San Jose is not far away. There are some point to point carriers that could switch flying and that could help. If you look at regional capacity, you know, and you look at the Bay Area as a region, there's Oakland, there's San Francisco, San Jose. But for anything connecting, it's going to have a really big impact and we need it to work. I will say that one of the things about San Francisco that's a little tricky is because of the way that the taxiways are laid out. I know that there have been issues in some low visibility conditions, but again, that's not where we have the problem. That's not what they're talking about. Where you'll have an aircraft that might line up on a taxiway instead of a Runway, it's very quickly fixed and it has not resulted in anything tragic. And that, to your point, is a, is a technology issue that can be fixed. But I don't think that's what we're solving for. I think what we're solving for is visual conditions after the morning fog has cleared. Right. So San Francisco gets all of that. They get a lot of low visibility. We get this too in Pittsburgh. That rolls in at, you know, late at night and early morning and. But they're doing staggered landings then. Yeah, this, this is, this is, to me, this is a, this is, this has a really big impact. It'll have an impact on United, it'll have an impact on its partners because a third of that capacity to be substantially delayed. That's, that's going to hit, that's going to hit the economy.

[Christina Casodis]

Yeah, yeah.

[Scott McCartney]

Not just the local. That's what I want to say. It's not just about the San Francisco economy, it's about the US Economy and the global. Because you're suddenly taking something away in terms of access and connectivity and the ability to move people and goods efficiently.

[Christina Casodis]

Right. And you're taking away a system that has worked safely for 20 years. You better have a good reason.

[Scott McCartney]

Yeah, yeah. And we have a lot to do in terms of the ADSB in the ad we've got, you know, the ADS B in technology and I know people are working towards that and now there's a 2031 date. But candidly, you know, this is, this is why the, the global ecosystem is so tremendously interdependent. Right? It matters what happens on the ground, it matters what happens in the air and it certainly matters how the regulators perceive it. And then you know, what, what their, what their actions are going to cause for impacts once they make these kinds of decisions. So hopefully, hopefully they can get back to the 54 because I think we

[Christina Casodis]

need it right sometime before 2031. And just for listeners, ADS B Precision satellite based location system. ADSB has other functions and airplanes can talk to each other and all that, but it can give a GPS location down to 8ft or something. So the controller's display has a very accurate indication of where that airplane is. So you know that it's lining up on the right Runway and you know, that's what the inaccuracy of a standard radar system doesn't allow that to safely happen. With an advanced radar system which they, they have in place, you do get more accurate positioning of the aircraft and you can safely operate with that short distance space, short spacing between them.

[Scott McCartney]

Yeah, ADS B is fascinating. That's the whole sort of basis of NextGen and it allows for, instead of radar based positioning which is I think every five seconds, this is every half a second. And ADS B out means that the plane itself is broadcasting its position so that the controllers can see it. ADS B in means that the pilots have situational awareness without necessarily having to wait for the controller to tell them. Right. So in the case of the DCA crash, the issue is that the plane did not see the helicopter, the helicopter did not see the plane. With ADS B in, everybody is seeing what's happening and these Kinds of things, they don't happen.

[Christina Casodis]

And the holy grail is the two airplanes. The computers can talk to each other and space each other properly.

[Scott McCartney]

That's right.

[Christina Casodis]

Right.

[Scott McCartney]

Yeah. So it's. Anyway, it's a lot. And I am flying to San Francisco soon, so I'm going to experience it firsthand. Okay. Two strong voices in the industry. Kevin Burke, the president and CEO of Airports Council International North Africa America has announced his plan to retire. He joined Acina, as we call it, 12 years ago and has been an important advocate for airports through the pandemic and beyond. And something we're going to be watching obviously is to see who the candidates become for that important position. And Willie Walsh, the Director General of the International Air Transport association, an outspoken leader for airlines. Very outspoken. And is leaving that position at the end of July to become the new CEO at Indigo Airlines in India. Willie, of course was the CEO of AER Lingus and then British Airways and then the CEO of the parent company, IAG International Airline Group. Walsh will replace Peter Elbers at fast growing 20 year old Indigo. Elbers, the longtime KLM leader took Indigo from domestic budget carrier to serious global contender. But he resigned after a meltdown in December with some 2,500 flight cancellations and 300,000 customers stranded. Walsh was under contract at IATA into next year, but the industry trade group will have to find a replacement sooner than later. And this is why I said Freaky Friday. It was the first thing I actually said to my team is watch. I bet Peter will go to IATA. Typically, IATA turns to former international airline CEOs and Peter Elbers does come to mind. And of course there's Michael Rousseau at Air Canada who's going to be leaving his job soon, as was discussed last week. This is, to me this felt like really big news because I know that this is going to be really fascinating and it would not surprise me to see peter at, IATA.

[Christina Casodis]

Yeah, you know, Willie, I, I've had some, some really fascinating interactions with Willie. I, you know, I hosted a airline sort of a thought conference at, at Duke several years back. Willie flew in for it.

[Scott McCartney]

I was there for that one.

[Christina Casodis]

Yeah, yeah, absolutely. And you know, and he. Particularly on climate. Oh yeah. You know, he's been an important voice on pushing that. He has been a strong advocate for, for airlines around the world. And I think he's going to be missed at iata. He brought, you know, some, some clear thinking and candor. Exactly.

[Scott McCartney]

And that's, and that's what we need in the industry. And I have always you know, he, he, he has a very dim view of airports, I think because of a lot of when he was with BA and IAG with Heathrow in the past. But you know, every time I spoke to him about what we were trying to do with Saf, he was completely supportive and very interested. He's super smart. You know, the guy knows the industry cold, obviously. And he's got a fascinating history. I know that. I think he and Rahul go way back from what I understand. So my guess is he'll probably love getting back into the day to day. But I think to your point, he's very outspoken, he's very candid and I think that that's what the industry needs is a lot more candor.

[Christina Casodis]

Yeah. Yeah. All right, time now to thank our sponsors for making this podcast possible. We want to thank RTX for its longtime sponsorship. RTX rallies more than 180,000 innovators around a powerful vision to create a safer, more connected world. With industry leading tools and technology, the RTX Global team works across market leading businesses Collins Aerospace, Pratt and Whitney and Raytheon to drive progress for generations to come together. RTX pushes the boundaries of known science and finds new ways to connect and protect our world. Visit rtx.com to learn more. And thanks to Infinity Flight Academy, the leader in cadet academy training programs for helping us bring the podcast to you. Whether you're looking to build a custom pipeline or strengthen your existing cadet program, Infinity Flight Academy delivers consistent airline ready results. And for those of you listening who've always dreamed of flying, do it. Or if you know somebody who has, tell them to do it. Infinity Flight has trained thousands of students, many now flying for major airlines around the world. Learn [e-mail] Infinity Flight Academy where future

[Scott McCartney]

pilots take off and we want to thank Cirium. Cirium offers the most accurate and precise data and analytics to enable airlines to optimize planning, operations and passenger services. The right intelligence drives operational efficiencies, enables you to predict market shifts and help airlines respond quickly to maximize revenue, manage costs and seize commercial opportunities. Visit cirium.com for more.

[Christina Casodis]

Okay, let's turn to my conversation with Khaled Usman of Oliver Wyman. Khaled Usman is a partner at consulting firm Oliver Wyman, focusing on aviation, aerospace and defense. He's also one of the authors of Oliver Wyman's regular economic analysis report, which I always find useful. Khalid has recently been doing a lot of work around the impact of the Middle east conflict on aviation. Oliver Wyman has been studying supply chain challenges and travel patterns and the effect on airlines. Khalid has a Master's degree from mit, an MBA in International Aviation from Concordia University in Montreal, and a bachelor's in Aeronautical Engineering. He joined Airlines confidential back in 2023 and it's a delight to have him back with us, especially at such a turbulent time. Welcome back, Khalid.

[Khalid Usman]

Thanks Scott, for having me again on Airlines Confidential podcast. I would say I'm a big fan of your podcast and never miss any single episode. Last time we did it was around three years ago as the industry was emerging stronger back up from the pandemic crisis. Ben Baldanza was one of the co hosts and before we begin, I want to take a moment to honor the memory of Ben. He was always a thoughtful voice who challenged conventional thinking and pushed the airline industry forward and will always be missed.

[Christina Casodis]

Yes, thank you for saying that. It's very sweet and miss him all the time. And you're right, we would all be better off hearing his voice through all these turbulent times because I know he'd have smart things to say. Well, speaking of smart things to say, let's start with the research you've been doing. Obviously the situation is changing, changing each week, each day, even each hour. We know fundamentally that higher oil prices are not good for airlines and some major airports in the Gulf and the Middle east have been severely impacted. What do you see as the key industry impacts to date of the Middle east conflict?

[Khalid Usman]

No, it's a great question. I mean, aviation industry, as we have seen through the last couple of weeks events, is going through another round of unprecedented turbulence, flight cancellations and capacity groundings, fuel shock, airspace closures, passengers getting stranded, airlines calibrating their networks. The Middle east conflict is affecting aviation industry globally and in multiple ways. We have over 60,000 plus flights canceled, over 6 million plus passengers impacted, and a projected $34 billion hit to middle east tourism. But most importantly, it's the sharp increase in jet fuel prices that is affecting airlines and travelers across the globe. Now, once we look at the airline networks and capacity picture, the key takeaway is that roughly 20% of global airline capacity as measured by ASMS is impacted based on the analysis of airline schedule data. And if you do the math, that breaks down into 13.5% global capacity directly exposed to Middle east, which is capacity that is departing or arriving into the Middle East. And to get the facts right, not all of that is rounded and 6.5% of capacity indirectly impacted through airspace diversions and reroutings. So we are not talking about a marginal disruption this is one fifth of the global airline capacity. And that is a critical point. Even if you are not flying through the Middle east, you are still exposed because aviation is fundamentally a globally interconnected system. Airspace disruptions affect routings everywhere. Fuel is globally priced and airline networks are deeply interdependent. And the other factor on airline routings, most of the east to west flying is going through the Gulf corridor, which is now forced into longer and less efficient routings. That increases the airline cost, fuel cost increase due to longer block time, pilot crew costs and maintenance costs increase. Sometimes airlines have to do a technical stop due to range limitations, lower aircraft utilization and aircraft, which is one of the most expensive assets for an airline. So this closure of airspace adds to more than 6% of capacity that is subject to additional detours. And we have seen similar dynamics with the Russia, Ukraine airspace that was affecting 5% of the global capacity. So that adds another constraint layer on top of it. So if I have to say in summary, the impact is being felt across the global industry and in multiple ways.

[Christina Casodis]

Yeah, I think we don't think about the overflight impact a whole lot. I mean, obviously you realize that flights to Dubai are obviously impacted, but it's so interesting and the impact is so much more than we, we realize sometimes in terms of schedules and networks. How have airlines adjusted?

[Khalid Usman]

Yeah, once we move from the overall global macro picture to understand how the geographic exposure is playing out, it becomes clear naturally the Middle east is most exposed. Roughly 40 to 50% of the capacity in the region is now operating. There are countries like Saudi Arabia, Oman that were less effective to compare to other Gulf countries. Very limited flights and other parts through safe corridors. But with the war risk insurance and burdened by the extra costs and risks, some of the Middle east airlines like Emirates have brought up their flights back more than 60%. And it is remarkable given they had some attacks at airport also. However, demand is rather an unpromising picture because you know, once you look at some of the flights from Middle east hubs, they have been very one way where return flights have very low load factors. Also, once we look at the fleet and aircraft data, at the end of March, around 56% of the aircraft in Middle east region are in service and they are operating with lower utilizations and the schedules are not ramped up. In cargo aircraft. We have a fleet of over 100 freighter aircraft in the region, almost half of these by Qatar and Emirates cargo. And on top of it, with the reduction in passenger operations and valley capacity, the cargo flow and the supply chains get impacted. And actually we have Africa and Asia impacted due to proximity reliance on the airspace corridors. Europe sees a meaningful exposure. If you just look at the numbers, around 8.4% of capacities to Middle east and also the overflight which does affect them. And then if you look at the North American metrics, US roughly 2.5% of capacity. But the US airlines which had been flying to Dubai, Doha and Tel Aviv, which of course have been canceled, and then the big three Middle east carriers flying into US similar exposure in Canada as well. So at a first glance, this would look relatively contained. But the most pertinent impact is the spike in volatility and fuel cost for the airlines, which roughly comprises over a quarter of the airline operating costs. So while the direct capacity exposure to North American carriers is somewhat smaller, the airlines in the region are definitely economically exposed to the turbulent geopolitical environment. And then the second impact we can talk about is more structural and about some of the network rebalancing and competitive dynamics. So the airlines, they have shifted towards direct long haul routes which is bypassing the affected hubs. There's alternate hubs like in Southeast Asia, Singapore, Bangkok, Kuala Lumpur, Turkey, at the intersection of Europe and Asia. Some of The Asian airlines, for example, Air India, flying nonstops, adding about 10,000 incremental seats in 10 days from India to Europe, bypassing some of the hubs. But you know, it has to do some of the technical stops in Europe like Rome and Vienna. So there will be a downstream effect on airline networks. Airlines are starting to trim less profitable routes and reduce frequencies to offset some of the rising costs, primarily fuel. And you know, we've already seen some of the airlines coming up with scheduled reductions of up to 5% or more in some cases.

[Christina Casodis]

Yeah, I imagine we'll see more of that. Are we already seeing traveler preferences demand patterns changing? I'm curious. This comes at the same time that we've had the mess with TSA funding and long passenger lines. Is that affecting traveler demand?

[Khalid Usman]

Yes, we can expect a lot of changes happening in the market. With the golf hubs disrupted, the global traffic flows are being redistributed. The Middle east mega connectors and over 12% of global traffic flows pass through these. I mean, safety is becoming a concern for travelers. Right. And it may take some time before consumer confidence is fully restored. For some of the past demand shocked data points involving passenger security. And if you look at the unfortunate events of 911 as proxy, it took roughly two to three years before demand normalize back to the same levels and the traffic flows Currently they are getting changed in terms of destination attractiveness. So destinations like Greece and Southern Europe as example, Italy, Spain, Portugal, they're all seeing spike in the booking patterns as travelers are looking at alternate safe destinations during the conflict. Similarly, destinations in Southeast Asia are getting more traffic. Depending on what part of the world you're originating from, some of the tourism flows will be diverted. So the destination attractiveness and consumer preference will be important to watch out. And airlines will need to keep a pulse on forward consumer signals to calibrate their networks accordingly. And we also saw some slight weakness in transatlantic demand pre conflict, which was based on the forward booking data from Cirium. I think the question is if the conflict continues, will people prefer to be closer to home rather than traveling longer distances? So I think that's going to be important. And now I know you raised the question on, you know, the tsa. We also face some operational disruptions in US with long TSA wait times across the US airports with some passengers either missing flights or shifting to alternative modes. Now, surprisingly, and as a positive sign, once we look at the numbers, the travel demand actually stayed pretty robust. March, which was the affected period with very long wait times, saw an average of 2.5 million daily passengers passing through TSA checkpoints across the US airports, which was roughly around 1.7% higher than the same figure a year ago. And once we look at. Yeah, so surprising. Yeah, that was pretty robust, right?

[Christina Casodis]

Yeah.

[Khalid Usman]

Once we look at February, which was without any such issues, we saw it was about 2.7% higher compared to the year ago. So if we do the math, we can attribute about a module decline of maybe 1% to passenger inconvenience. So it's pretty robust in a sense that the delays acted more as an operational constraint rather than significant reduction in demand, which does imply that we are seeing strong demand as we head towards the summer season.

[Christina Casodis]

Yeah, but some, some impact too. That's, it's so interesting and it makes sense. You know, if you have a four hour TSA line wait, you may get in the car and drive to a destination if it's relatively close by or you may just cancel the trip and do your meeting on Zoom or whatever. So. But it's interesting to see that data and also that it does bode well for a robust summer. That's really good. So you mentioned some of impact of fuel prices and cutting some less profitable capacity. I'm curious on the broad picture of what you think the, the potential impact of that is. We've heard a lot of talk about airlines Raising prices, airlines raising bag fees. But it does strike me that airlines in general have never been able to just pass on higher costs without severely impacting demand. If they could do that, this would be a high margin business. They'd certainly pass on higher fares in good times if they thought they could. So what happens now to airlines and airports facing higher costs?

[Khalid Usman]

Absolutely, Scott, that's a great question and a lot to unwind over here. So I mean the fuel costs, you know, they represent over 25% of an airline cost structure. And the current Middle east conflict, that's as uniquely impactful because it directly affects the global supply chain of energy flow. So now one thing is clear from the past precedents. Energy shocks are never good for the industry and will have a profound impact on the airline cost structures, airfare changes, demand impact, route economics and capacity takeout. So given the volatility in fuel price and unpredictable nature of events at Oliver Wyman, we prepared three different fuel shock scenarios and did some simulations. So which can give some directional guidance on impact of global airline economics. And if I go through those, I mean, first scenario is a short term spike and the likelihood of this happening is pretty low. Given even if the conflict ends today, the production and supply chain hangover can last much longer. Then we go to the moderate shock where oil spikes for three months to around $100 per barrel for Brent and then steadily normalizes at 80 per barrel for rest of the year. This is in line with accrued crude future contracts for the rest of the year presently. And a more prolonged shock scenario is where fuel stays at $100 per barrel for rest of the year. Now if you focus on the moderate shock increase, the increase in fuel cost, it results in over 75 billion USD in increased fuel bill for the global airlines. Now as a sharp increase in fuel costs, airlines pass major part of this fuel increase with fuel surcharges or with more creative ancillary offerings such as increased baggage charges. And we have already seen some of that happening across the globe. So this increases airline fares, which by our modeling suggests that at oil spike it could cause at least a 10 to 12% increase in fares, which could translate into an annual fare increases of 5.5%. Now that also brings an interesting point based on macroeconomic theory and what you were mentioning before as well. Based on the price demand curve, there will always be a price sensitive segment or a more commoditized segment of the market which will get impacted by increasing prices. In our moderate scenario, it would reduce travel demand by over 5% for months where we have an oil spike and 3% on an annualized basis. However, it's useful to point out that demand erosion is also nonlinear and you could potentially see more demand erosion if fuel spikes higher and if it results in an economic environment driven by inflation, which causes bigger dents in consumer spending. And if you put all of this together under this scenario, it gets the global airline margins under pressure by 3 to 4% points and will squeeze the airline industry profits globally by about $40 billion. It will take a big hit on the global airline profitability, which was predicted by International Air Transport association at the highest ever Number of 41 billion for 20276 before the turn of the events.

[Christina Casodis]

And this is kind of the lightest scenario, right?

[Khalid Usman]

Yeah, I mean, I would say this is definitely more like on the moderate lines. Right. We could actually see much worse if the conflict is lasting for longer and you could actually see more higher spike. And I think the bigger risk factor over there is the economic environment, which could cause some dent in consumer spending as well.

[Christina Casodis]

Yeah.

[Khalid Usman]

And actually, I think if you look at the past history as well, the aviation industry is resilient, but history has its ups and downs. In the past 25 years, the industry globally has seen 13 profitable and 12 unprofitable years. So where we end up this year will largely depend on the ability of the airlines to manage the costs, leverage the revenue and pricing opportunities and calibrate their networks profitably. So as I pointed out as well, I mean, in addition to the fuel costs and price elasticity, the risk of the slowdown in economy that can impact travel demand remains. You recently had bank of America, which recently revised its forecast to reflect the true economic impact of war so far, and it was cutting its 2026 global growth estimate by 40 basis points to 3.1%. Now, some of the slowdown economy will have a direct consequence for the travel demand as long as we believe that the econometric principles will be maintained.

[Christina Casodis]

So who actually wins in that scenario? Do the network airlines gain? Do the low cost carriers lose? Are there certain regions of the world that are going to actually profit from this while others lose from this?

[Khalid Usman]

Yeah. No, we are not going to see a symmetrical impact across all the global airlines. I mean, there will be winners and losers coming out of it, and there will be airlines that will get affected more than the others. And globally, we will see different impacts across different regions. If I have to summarize on some key points, the increased fuel costs will make route economics for certain markets hotter. And where we have supply surplus in the system, it could reduce and result in capacity shakeout for marginal or loss making routes. Routes will be cut and frequencies will be adjusted. Lower demand days and less profitable flying will be the first one to come off. We will likely see some consolidation and structural shifts across the industry. Airlines and business models that appeal to more price sensitive and commoditized segment of travel will get impacted more. And these typically will be the lower cost carriers. And it will be chance for carriers with stronger balance sheets and cash flow positions to retain strength in the longer term. And if you look at in the short term, there will be opportunities to adjust networks and adapt to the new demand patterns. Whether that's complementing the consumer preference for new destinations and you've already seen some of that, or capturing some of the travel flows that are impacted. So there'll be an opportunistic play over there. And for the regions that are getting directly impacted, it will be a slow recovery process both in terms of people getting in and out, the tourism flows and people connecting over the mega hubs. And a lot of that also depends on how quickly we can have some lasting peace in the region. I mean demand in general and the premium demand, that will be an interesting trend to look out for. And airlines that have anchored themselves on this particular segment will generally fare better.

[Christina Casodis]

So if we are looking at $41 billion impact for the industry, 3 or 4 percentage points, obviously a serious hit. The recent economic analysis report Oliver Wyman did offers lots of data and analysis on the fourth quarter. I'm curious about your assessment of where the industry was going into the conflict before that hit. I often use the analogy of in the winter the squirrels. Squirrels collect nuts in the summer and put them away so that they survive the winter. In this case, did the squirrels have a lot of nuts stored to get through the war or was the industry not so well prepared for for this?

[Khalid Usman]

Thanks, Scott. And for background, as we mentioned, the OW produces a quarterly airline economics report on state of industry globally and we just released fourth quarter report for 2025. We always have to wait for global airlines to report before before we can publish. While a lot of turbulent and volatility is happening in the industry right now. But if we just focus for the most recent performance. Here are some of the key themes over there. The first one is that margins are holding up, but some cracks have been forming underneath. If you look at the global margins, they were 7.2% in quarter four, which is solid. But underneath that there are some warning signs. Costs have been growing faster than revenues. And that's usually how the margin compression cycle starts in aviation. Compared with the same quarter a year ago, the margins were 1.4% lower. So one interesting nuance over here is that for this past quarter, fuel actually came down on a year over year basis. Fuel costs were 6% lower compared to the prior year. So this quarter four wasn't about oil prices. But we will get the headwinds in the future quarters. The second point of theme is that there's a huge regional divergence. It's not one industry, it's a set of very different regional stories. Latin America for that quarter was actually leading the world with mid teen margins. North America was starting to feel somewhat of a pressure and outside of the legacy network airlines and the low cost business model was under threat here. The Middle east airlines did extremely well. Solid performance from the big carriers there. But as we are seeing significant challenges lie ahead. So network footprint matters more than ever. Finally, the third and most important one, the real battleground is going to be or has been the cost versus revenue discipline. Demand is strong, premium demand more so than ever. The challenges in execution, how airline can control costs, maintain pricing and run efficient operations. Now if you look at it, the industry went through a recent turmoil five years ago and as a whole is much better prepared to handle this sort of a turbulence in terms of network agility, cost control and capacity and revenue discipline. There are airlines that are with very strong balance sheets and will at the tail end of it emerge out stronger and there will be weaker ones where it will be much more challenging. I mean needless to say we will see some industry moves and consolidation happening out of this.

[Christina Casodis]

So all in all we're better prepared for this. Except for the weaker players.

[Khalid Usman]

No, definitely. Yeah. I think it's not going to be a common impact across. We definitely have airlines that are in a much stronger place and I think the playbook that they've leveraged in the last couple of years, I think their tools at the disposals the revenue monetization. How do I do that? Airlines have been extremely fast in reacting to the feedback fuel cost and putting in fuel surcharges. So execution matters a lot more than it has done in the past.

[Christina Casodis]

Yeah, yeah. So if we do have a continued conflict, how would that further impact operations, maintenance, repair, supply chains, what would be the long term impact? And I'm also curious, I've heard a little bit about the possibility of jet fuel shortages in Europe or Asia or Australia because of the closure of the strait or moves. A friend, friend told Me in Australia, public transportation is now free because they're trying to get people out of cars because of worries about fuel shortages. What is ahead if the conflict does continue?

[Khalid Usman]

Yeah, I think all of that is true and definitely big risk factors over there. Continued political conflict, geopolitical conflict. It has the potential to cross create much deeper and sustained disruptions across airline operations, mro, global supply chains, and actually these are impacts that extend far beyond the immediate region as well. Right. And if we first focus on supply chain, that's where the impact becomes truly global and multimodal. The conflict is already disrupting oil flows and maritime shipping routes with potential increases of up to 15 days in shipping times for certain east to west routes. That has direct implications for aviation as many critical components, engines, parts, avionics, they move through these global logistical networks in parallel. We are also seeing shifts in the air cargo flows, particularly around Asia and North America, along with the rising spot rate. This creates both cost pressure and unpredictability for airlines that are trying to secure parts quickly. Longer lead times, higher logistics costs, less reliability and delivery schedule, they all contribute to increased aircraft on ground risk. And on the MRO side of things, the situation becomes more nuanced, but equally critical. There are near term risk around engine and component availability given the supply chain risk. At the same time, a higher fuel cost environment could accelerate fleet retirements, which could particularly for older and less fuel efficient aircraft. It could reduce MRO demand for aging fleets in short term, but in midterm it would also increase pressure on some of the next gen engine and components which are already feeling reliability and supply chain challenges.

[Christina Casodis]

Yeah, yeah.

[Khalid Usman]

And then I think touching on your fuel part, finally, there's going to be a big compounding effect of fuel and commodities as well. Right. If you look at the disruptions in oil transit, particularly through the key choke points like straight or formoose, that is pushing up the jet fuel prices globally. So that not only impacts the airline economics directly, but it also increases the cost of manufacturing, transporting and maintaining aircraft components across the entire value chain. So pressure is also fed unequally in different parts of the world. And if you look at the jet fuel price data, Asia was 6% higher than global average. US average was 6% lower than global. Sustained disruption in supply chain that can cause fuel shortages in some parts of the world. So that's again an emerging risk as well. So once we take it all together, it fundamentally stresses the interconnected system of airline ops and maintenance infrastructure and supply chains. And longer it persists, the more those pressures compound. And airlines could be forced into reactive and short term decision making rather than longer term planning.

[Christina Casodis]

Wow. So what's the bottom line? How should we think about what comes next?

[Khalid Usman]

Yeah, when we think about what comes next, I mean, I would say the key takeaway is industry is moving from a period of disruption into, you know, one of structural adjustment. And that adjustment likely will be somewhat uneven and prolonged. You know, first the airlines need to operate in an environment which is defined by persistent cost pressure, particularly from fuel. Even if the volatility moderates, the baseline has shifted higher, which means margins will remain under pressure. While pricing discipline will be critical. Revenue monetization capabilities will be equally important. Airlines will need to ensure cost discipline and cost variabilization. They'll need to be very agile in demand planning and recalibrating their network, something that they learned and adapted well from post pandemic related disruption. And I think that's where we talked about that. They definitely are well prepared for some of the playbook perspective. We should expect more network rationalization, deeper partnerships and consolidation as some part of the capacity and economics will come under threat. And we'll see consolidation, particularly in regions where subscale carriers lack the network depth or capital to compete effectively. And there's going to be a second order effect as well. Consolidation could actually help restore some of the pricing discipline across markets, which in turn then supports the margin. But it may also raise some regulatory and competitive questions in certain regions. And then I would say finally, at the same time, aviation's industry underlying resilience should not be overlooked. Airlines have shown time and again and through periods of past crisis that they can actually manage through volatility and emerge stronger. And it would not be any different this time. Airlines are vital to the growth and economic engines.

[Christina Casodis]

Yeah, absolutely. And I suppose if the war ends and oil prices come crashing down and demand is strong, there's going to be the chance to get back a lot of that $41 billion or whatever the losses are. Yep, all very interesting, Khalid. This has been so useful, so helpful and really appreciate the analysis, the history, the wisdom, the insight, helping us make sense of it all is really valuable. So I really appreciate your work here.

[Khalid Usman]

It's great to be here, Scott, and very insightful questions and great discussions. I think it's interesting times and I think the airlines are definitely, I would say, prepared to handle it. But naturally there's risk on the horizon.

[Christina Casodis]

Yeah, yeah. And winners and losers, so.

[Khalid Usman]

That's right.

[Christina Casodis]

You know, once again, as the industry lurches from crisis to crisis, it changes and it's always fascinating and always impactful for all of us. So that's great.

[Khalid Usman]

Thanks for inviting me Scott. Appreciate it.

[Christina Casodis]

Well, we will stay on top of it and and with your help, appreciate it very much and we will be right back with more on airlines Confidential

[Khalid Usman]

promotional support provided by the ultimate Avgeek

[Christina Casodis]

website, the archive.net a vast collection of

[Khalid Usman]

airline memorabilia, timetables, route maps, rare cabin

[Scott McCartney]

and airport photos, special flights and more,

[Christina Casodis]

all@the archive.net the hub of air transport history. Thanks again to Khalid for some really useful information and great insights into this rapidly changing aviation economy. Before we get to the mailbag, special thanks to Ontario International Airport, which is celebrating a decade of local control. Thanks to public support, the local community reclaimed Ont, revived it as a vital gateway in Southern California and ensured the airport is ready to soar even higher in the years to come. Visit flyontario.com 1010 to learn the story and find out how you can join the year long celebration of how a decade of local control has turned Ont into one of California's fastest growing and most economical airports.

[Scott McCartney]

Kudos to Ontario as always. In addition, thanks to the Executive MBA in Aviation at the University of Colorado Denver The Executive MBA in Aviation at CU Denver is the first degree of its kind in the world, taught by industry experts and designed for ambitious leaders from across the aviation ecosystem. With classes located at Denver International Airport and week long residencies in Washington D.C. and at airports around the world, students experience a hybrid, flexible course structure that balances in person and online classes without career interruption. Go to business ucdenver.edu to learn more. I love this program and I'm excited to learn more about it myself.

[Christina Casodis]

Yes, yes, absolutely. It really is fantastic and I know

[Scott McCartney]

you're involved and a lot of your hosts are and we're definitely looking to figure out how we can participate because I think this is such a huge opportunity to really understand the ecosystem as opposed to just one part of it. And I credit all of you for starting this really well done and they're

[Christina Casodis]

doing a great job with it. University of Colorado Denver I've been so impressed with just how they teach, how they run the program. I've met some of the students graduating from the regular Executive MBA program. It's just fantastic. And the students that are in the aviation program now, I think average age is like 41 and they are extremely talented from all different corners of aviation and beyond banking and medical sort of career change people. It just has attracted a wonderful group and I think the future the next class that starts in January will be just as equally exciting. So really encourage people to take a look at it. All right in the mailbag this week. One thumbs up and one thumbs down from listeners. First the thumbs up from Brent in Houston who describes himself as a self proclaimed flight profitability geek. Brent says, I just listened to the episode on route profitability. I have spent Most of my 30 year career in this discipline having implemented flight profitability systems currently running at American, Southwest and Delta, as well as serving as a subject matter expert for countless other airlines. I have to say that Doug Parker did an unbelievable job in explaining the discipline airlines use in measuring route performance. While Doug simplified the examples, he was complete in the way in which the analytical data is built, covering beyond contribution, credit card revenue and the impact of aircraft ownership. What makes this craft so rewarding is the blend of the science in data management with the art of cost allocation methodology to drive real world decisions for airlines. Happy to lean in on Route profitability 202 and Brett, thanks for that. Brett's a major, major consult the business and high praise. High praise from somebody who really knows. Yes, yes.

[Scott McCartney]

Well, let me talk about the thumbs down. So we got a thumbs down from Chris, from Charlotte, from clt. Chris says you mentioned on last week's episode both you and your co host saying deploying ice was window dressing. I went through security in Phoenix with ICE agents working the part of screening, helping everyone getting luggage on belt for screening. This freed up TSA agents for operating machines and processing bags for secondary screening. It helped both of you allowed political preferences to influence your reporting, keep your show free of politics. You do an amazing job and I appreciate your show because you do a really good job. Great job avoiding politics, says Chris. P.S. politics affect us. But go ahead.

[Christina Casodis]

No, that's what I was going to. I'll just say, Chris, that the politics came to us, right? Not paying TSA agents and sending paid ICE agents to be line helpers. Those were political acts. I'd certainly rather not get involved in political discussions on the podcast, but when the politics come to the airport, we have to talk about it.

[Scott McCartney]

Yes, and they came to ours as well. But politics affect everything. I mean politics affect the decisions on all sorts of things in other parts of the world and end up affecting the system. This system, aviation globally is so affected by politics, small piece capital P all over the world consistently. And navigating that is part of what we as leaders have to do every day is to manage the uncertainty that can just show up out of nowhere. I mean, I heard your conversation. I don't think it's about partisan politics. It's just that politics have affected our system and we have to manage through it. So it's hard to do that without talking about why we're doing it. Sort of like fuel prices, right?

[Christina Casodis]

Right. But it's a great point you make. I mean, when I teach history at the University of Colorado, Denver, we spent a lot of time talking about 1978 and deregulation. All of that was political, right?

[Scott McCartney]

Political. Very political.

[Christina Casodis]

All right. That's all for another edition. Thanks so much, Christina Casodis. I hope everything's going well in Pittsburgh and so appreciate your time and your wisdom on all of this.

[Scott McCartney]

Well, thank you. It's always a pleasure to be here, and I wish you a great week. And so long, everyone. Thank you.

[Khalid Usman]

This podcast is produced by mass media infousmedia.net.