As oil prices soar, airlines begin to see red

24 May 2008

A headlong upwards rush in the price of crude oil is not only making carriers see red but also forcing them to raise fares in a desperate bid to stay afloat. Most large American carriers increased fares by a significant amount late this week.

Travel on United Airlines, Delta Air Lines and American Airlines, will see travellers now paying from $10 to $60 more for round-trip domestic tickets - the higher charge will apply to trips of more than 1,500 miles whilst the lower charge will be applicable for trips of less than 800 miles.

They hope that increased fares will help alleviate the pressure caused by oil surpassing $130 per barrel.

This has naturally forced industry analysts to ponder the question if revenue sources for airlines, as they stand, are enough for them to cover the cost of the product. Or have carriers reached the breaking point?

Though crude prices retreated to $131.70 per barrel by Friday, it needs to be kept in mind that crude was $66 per barrel in May 2007. Since airliners run on jet fuel and not crude oil, the cost goes up further as jet fuel after refining is $173 per barrel – that is $42 more than the price of crude, and also $83 more than it cost a year ago.

These figures are according to the Air Transport Association.