A stark warning of further US airline collapses has been given as high oil prices hit yearly costs to the tune of $30 billion, travelmole.com reports. A study by the Business Travel Coalition and Airline Forecasts estimates that US airlines will only be able to generate $4 billion in fare increases and incremental fees while fuel prices are record highs of $130 a barrel.
The report says: ¡®Without a swift reduction in the price of fuel, the industry is headed toward a massive failure that will result in more bankruptcies, including liquidations. If oil prices stay anywhere near $130 a barrel, all major legacy airlines will be in default on various debt covenants by the end of 2008 or early 2009.'
'US commercial aviation is in a full blown crisis and heading toward a catastrophe. Airlines are the primary source of inter-city transportation, critical to national and local economic development, the flow of human capital, movement in just-in-time parts for manufacturing, perishable food and other goods critical to our economy. With airlines gravely threatened, so is our economic well-being.¡¯
The top ten US carriers will spend almost $25 billion in higher fuel costs this year over 2007, according to the study. They could lose as much as $9 billion over the next 12 months if the current range of oil prices hold. Fares will have to rise by 20% across the board just to cover the dramatic hike in fuel costs ¨C but this is not possible given the level of uneconomic seat capacity in the system, the report says.
Airlines will have to trim capacity by as much at 20% but there is no guarantee that a transition to a smaller, higher fare industry would be successful or sustainable. ¡®Airlines can attempt to radically shrink the industry but given the competitive situation they face, it¡¯s highly unlikely that they will have the ability to reduce capacity to levels that will allow all of them to survive,¡¯ the study warns. ¡®Instead, absent direct policy intervention, the likelihood is several airlines will fail.¡¯
Carriers such as American Airlines, Continental and United have already announced major cuts in flights, jobs and aircraft an effort to counter the high cost of fuel. |
