Anyone who has made a trip to the grocery store recently is well aware of the impact inflation has had in the wake of the COVID pandemic. Grocery prices alone have risen about 19% in the EU and UK since 2021, and 20% in North America. But inflation didn’t stop at the grocery store: prices have soared for everything from gasoline and home heating fuel to used cars and building materials.
While virtually every industry has felt the impact of inflation to some extent, air ambulance providers around the world have seen fixed costs rise significantly in virtually every area of their business.
“Everything is way up; it’s not just one or two things,” says David Fox, president of Fox Flight, an air ambulance company based in Toronto, Canada. “Just as an example, we did a trip to Merida in Mexico earlier this year and we paid about US$2,500 for landing, handling and Customs fees and ground ambulance transportation for our crew and the patient. We recently did virtually the same flight to the same place to retrieve a patient and it cost US$6,800 -- and that was without the ground ambulance included.”
The most significant cost for any aviation company is fuel, which can account for more than one third of all fixed costs depending on where the provider operates. In the last year and a half prices for aviation fuel shot up from around US$3.50 a gallon in February of 2022 to a peak of around US$12.80 a gallon last summer. Fuel prices have since drifted back down to the region of US$7.00 a gallon.
“The peak for fuel last summer made it pretty much impossible for us to offset the fuel cost,” explains Tom Hienckes, business development manager for Luxembourg-based European Air Ambulance. “It helps if you are flying newer aircraft because they are more fuel efficient, but the distance you have to travel to complete a mission is what it is regardless of the price of the fuel; you can’t make the distance any shorter.”
“We sometimes use a larger aircraft to avoid, when possible, making tech stops in some countries where fuel and handling prices are uncertain,” adds Sergio Abril, air ambulance industry veteran and current EURAMI Board member. “Although the hourly rate might be a little higher by doing that, it ends up being a better deal for the client if the costs are certain.”
Another fixed cost that has seen a dramatic increase for air ambulance providers is parts. All aviation companies are responsible for maintaining their aircraft to the highest standard, and they are strictly regulated by both their domestic aviation authority and authorities in the foreign countries where they operate. This requires a steady supply of parts for a range of aircraft, some of which can be hard to find, especially for older models. As with many other industries, supply chain issues with aircraft parts manufacturers have resulted in low inventories and inflated prices.
“We are a heavily regulated industry, and that’s a good thing -- you want the parts to get swapped out when they are supposed to get swapped out; you want regular inspections of the planes and equipment; you have to have regular scheduled maintenance,” says Mike Vallee, vice president of business development for Clearwater, Florida-based Air Ambulance Worldwide. “That being said, there are costs attached to that, and those costs have gone way up. For example, brake parts are up about 120 percent, tires are up about 275 percent -- and that’s if you can find them.”
Many air ambulance operators attempt to manage their maintenance costs by enlisting in programs, known as engine reserves, with parts suppliers. These programs spread the cost of parts over several years paid out in regular instalments.
“Our engine reserves have been going up constantly for the last several years,” says Hienckes. “We will have to renegotiate that five-year program this year with our supplier and we anticipate a substantial increase in that cost. But every operator is in the same boat; you can’t cut corners on maintenance.”
The Covid pandemic had a major impact on the availability of two pools of skilled professionals that the air ambulance industry depends upon: pilots and medical staff. The rapid return to travel following the pandemic resulted in a massive demand for pilots from commercial airlines, driving wages up sharply for experienced and younger pilots alike. Likewise, following the pandemic many medical professionals opted to retire or work part-time, creating fierce competition for the experienced doctors, nurses and respiratory therapists that air ambulance providers need to staff their flights. Says Fox: “The landscape has changed since Covid for medical professionals: nurses who used to make around $45 an hour in a hospital can now make $90 an hour working through an agency; we have to compete with that if we want nurses to come work for us.”
“Many older pilots decided to retire when everyone stopped flying during Covid, so there were fewer pilots overall when things got going again,” says Vallee. “The knock-on effect of that is that every air ambulance provider has had to increase pilot salaries substantially to meet the market.”
In addition, the rush to certify pilots for commercial airlines to meet the post-pandemic travel demand has increased the cost of simulator training for all aviation companies, adds Vallee: “It costs far more to hire pilots now, and it’s harder, and more expensive, to get them trained in the simulator, but everybody is facing the same issues. That’s just the reality in the industry right now: prices for everything have gone up, availability for everything has gone down, but the demand for air ambulance services has not backed off.”
While factors like the price of fuel and pilot salaries are expected to impact fixed costs for air ambulance providers, increases in a range of other areas contribute as well. For example, air ambulance providers routinely purchase commercial airline tickets to preposition flight and medical crews to complete longer missions, and the price of airline tickets has increased anywhere from 25 to 30 percent worldwide in the last two years. Similarly, air and medical crews routinely overnight in hotels on longer missions and must cover expenses for food and ground transportation when abroad; all of these costs have been impacted by inflation.
“You can’t do anything about these costs, and in some cases they are up 50 to 60 percent in the last year,” Fox points out. “When you add up all the additional things that go into running a mission, it makes a big difference.”
Another essential component of every air ambulance mission is ground ambulance transportation to and from the airport, and that has to be contracted out to a local provider.
“The cost of ground ambulances has basically doubled in Europe, but the price is the price wherever you happen to be flying; you have to pay it,” says Hienckes.
Adds Fox: “A ground ambulance in a city we travel to frequently in Florida used to cost about US$450 to pick up the patient and the medical crew at the hospital and take them to the airport – maybe two hours. Now there’s no way you could get one for less than US$1,200 for the same trip.”
Meanwhile, the cost of aviation and medical liability insurance, both essential for air ambulance operators, has shot up anywhere between 20 and 30 percent year-over-year.
“Our insurance provider says we can expect premiums to go up between 10 and 15 percent annually for the next several years, and that’s the same for every operator,” says Vallee. “During the pandemic the travel insurance industry paid out a massive number of claims with no hope of mitigating those losses. Then they sold basically nothing, or very little, for a couple of years until travel started to come back; it was catastrophic for the insurance industry. You have to remember that while the company providing travel insurance coverage and the company insuring our planes may be different, it’s still the same industry.”
“With higher overall expenses, financing and cash flow have taken on a whole new level of importance,” Abril points out. “This is a high-intensity cash flow business: we invoice high numbers, but we spend a big percentage of what we invoice on a day-to-day basis. The aviation industry in general has tightened credit terms, so if you are invoicing on 60-day terms and paying expenses on 30-day terms, cash flow becomes a top priority.”
THE NEW NORMAL
At the moment, global inflation appears to be slowing, mostly due to a long series of interest rate hikes by central banks around the world. However, factors like the war in Ukraine, strong consumer demand and stubborn supply chain issues continue to put upward pressure on prices. Given the current environment, it is unlikely that air ambulance providers can expect to see cost reductions any time soon. In fact, it is more likely that providers around the world, as well as their clients, will just have to accept higher prices as the new post-pandemic reality.
“When everything costs more, it’s tough to find savings,” argues Fox. “You buy cheaper fuel when you can, you have the crew stay in cheaper hotels, but you can’t pay your staff less if you expect to keep good people. There’s a point that comes where you can’t find any more efficiencies, and you obviously can’t operate at a loss.”
And unlike grocery store chains, which are now posting record profits thanks to inflation, air ambulance operators have been forced to raise rates simply to keep pace with their rising operating costs.
“It’s a perfect storm for air ambulance providers: you have to quote each mission based on the actual costs you are incurring, and those costs have been rising steadily for a while now,” explains Vallee. “I think most clients understand fixed costs on a visceral level, and they are adjusting their prices to account for inflation as well. These days--given the pilot issue, the training issue, parts, fewer planes, etc.--I think it is as much about air ambulance availability as it is about price.”
“We are getting it from every angle, but that’s the way it is now,” adds Hienckes. “I have explained to our clients that even though we have increased our prices to account for our increased costs, our margins are still quite low. But things like state-of-the-art jets and maintenance programs and experienced flight and medical staff are not cheap. As costs go up, we have to apply those increases to our pricing structure in order to make sure we are flying the best equipment and maintaining it properly. Also, at some point, we need to invest in newer aircraft. We can’t just ignore that and swallow those costs because we wouldn’t be able to keep up with what we need to do to meet our regulatory requirements and provide the level of service our clients expect.”
“In the post-pandemic environment, the industry clearly needs to reimagine how things get done, as well as what things like quality, service and competitive pricing means,” suggests Abril. “For a responsible operator, the cheapest way is not always the safest, most professional option for the client.”