airline economics

Influx Insights — 2008-06-10T23:24:12Z

For an industry that's already skating on wafer-thin margins, a 72% annual increase in fuel costs has sent the business reeling. It's almost impossible to plan for an increase like that and certainly no way this can be passed directly on to consumers in the form of fare increases.

The future for consumers looks tough with airlines taking more planes out of service leading to overcrowding and fare increases many business travelers will be asking themselves is they really need to travel. The video conferencing industry, so long talked about as a viable alternative, may at last see the boost it has been promised for so long.

This quote is from the Business Travel News 2008 survey.

"The Air Transport Association last month projected the domestic industry's fuel bill this year will be 72 percent higher this year than in 2007, while JP Morgan's Baker last month projected the cost of fuel to bleed industry profits dry in the next two years, forecasting a "an all-time record" $7.2 billion operating loss this year and a 2009 operating loss of $8.1 billion.

"Certain more modest forecasts are difficult to reconcile absent heroic fuel declines or unprecedented demand growth," Baker said. "A war of attrition appears to be underway. One belief is that airlines will act collectively to massively reduce capacity, leading to near-record fare improvement, but management may instead engage in value destructive behavior as they attempt to merely outlast one another—after all, capacity cuts thus far fall meaningfully short of what we and most executives deem necessary. At current fuel prices, legacy bankruptcies and/or merge-at-all-cost attempts are a question of when, not if."

Rising costs may have one positive effect, reducing the carbon footprint.

Posted by Ed Cotton

Influx Insights Tag Feed: fuel

airline economics