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| Version | User | Scope of changes |
|---|---|---|
| Jun 15 2008, 7:20 PM EDT (current) | jimglab | 362 words added |
| Jun 15 2008, 7:19 PM EDT | jimglab |
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Business travel group sees spiraling fares, bankruptcies
As oil prices continue to hover above $130 a barrel, a business travel organization has issued a paper warning that the U.S. airline industry “is in full-blown crisis and heading toward a catastrophe.” The Business Travel Coalition said it commissioned an analysis of the situation by AirlineForecasts LLC, which concluded that if oil prices stay “anywhere near $130 a barrel” – and many market watchers predict they will stay there for many months, or go even higher – then “all major legacy airlines will be in default on various debt covenants by the end of 2008 or early 2009. The implication is that several large and small airlines will ultimately end up in bankruptcy, and of those, some will be forced to liquidate.” As passenger fares and fees continue to rise, the report said, the “democratization” of air travel that has happened in the 30 years since the industry was deregulated is “disappearing before our eyes,” and in the future, the surviving airlines will provide transportation “only for the wealthy,” if present trends continue.
To cover the dramatic rise in fuel costs over the past year, U.S. airlines will have to raise fares at least 20 percent, the study found – the same level predicted by the CEO of Delta Air Lines recently. But with higher fares, fewer people will travel by air, so the report predicts the airline industry “will eventually be forced to shrink its seat capacity by 15 to 20 percent” – a process that has already started at some major airlines. “However, there is no guarantee that a transition to a smaller, more expensive (for the consumer) airline industry would be successful and sustainable,” the report said. Of the 10 largest airlines, only Southwest is expected to remain profitable over the next two years, the report said. It added that the government should make the airlines’ dire situation “a national policy priority.” Meanwhile, the airlines’ trade organization, the Air Transport Association, last week urged Congress to take immediate action to impose tighter regulations on the commodities trading industry, which it apparently blames for a large part of the oil price run-up.
