[photopress:air_usairways.jpg,full,alignright]The price of oil is going to change the aviation scene. At the moment it is about $130 a barrel. If it goes up much more – and all bets are it will – then a lot of el cheapo airlines will go down the drain and the ultra-cheap flights we have become used to will become a thing of the past.
If the price reaches $200 a barrel – and there are many that believe it will – it becomes crisis time for the airlines as well as for a lot of other industries.
The only side benefit that one can see is that the popularity of the daft, over-large passenger SUV’s will disappear like the summer snow.
The first sign of reactions to these problems comes with US Airways asking to delay the start of its first service to China for one year due to fuel price pressures.
Scott Kirby, the airline’s president, said in a memo to employees, wote, ‘At today’s prices, the fuel cost alone of running this single flight would be more than $90 million a year, about $40 million higher than the estimates we made when we filed for the route.’ As fuel is now about 30-40% of the cost of flying you can see how the price of oil can affect ticket prices directly.
US Airways said it asked the U.S. Transportation Department to let it begin its Philadelphia-Beijing service in the spring of 2010, instead of the spring of 2009.
Other U.S. carriers, including United Airlines and Northwest Airlines have recently sought to scale back passenger and cargo routes respectively to China due to fuel prices. Both have long established routes to Asia, and Northwest is adding a China passenger flight from Seattle.
Now United Airlines has applied for a similar delay. United, was scheduled to start its flights in June but now plans to postpone the start until June 2009. Robin Urbanski, speaking for the Chicago-based carrier was scaling back plans for the San Francisco to Guangzhou route because it did not have ‘strong enough economics’ to offset higher fuel costs.[photopress:air_cx.jpg,full,alignleft]
Closer to home Cathay Pacific Airways is considering cutting money-losing routes and retiring less fuel-efficient planes as fuel costs surge.
Cathay Chief Executive Officer Tony Tyler in an internal newsletter said the carrier will have to ‘reduce or eliminate routes that are draining cash,’ and reallocate capacity to its ‘strongest most profitable markets.’
Cathay may face increasing competition from Taiwanese rivals on the Hong Kong-Taiwan route after direct air links between the Chinese mainland and Taiwan are established as early as August. The route is one of its most profitable because of the large number of Taiwanese travelers to the mainland who change flights in Hong Kong under current restrictions, the newspaper said.
It all depends on the price of oil. If it goes over $200 a barrel this year – bear in mind it is already over $130 – then the effects will be dramatic and, at present, incalculable.
Another view of some of the problems airlines face is in China Economic Review under Going Dutch. To see this article click HERE.
Sources: Reuters and International Herald Tribune and Shanghai Daily.