US airline industry heading for a crash under current oil price regime: US report
14 Jun 2008
Washington: If oil prices continue to rise or even maintain their current levels the US airline industry will head for a crash, even as several carriers slip into bankruptcy, according to an industry study by AirlineForecasts and the Business Travel Coalition. The report, released Friday, says that the coming crisis threatens "our American way of life."
"As a consequence of the skyrocketing price of oil, the US commercial aviation industry is in full-blown crisis and heading toward a catastrophe," said the study.
Titled "Oil prices and the looming US aviation industry catastrophe: A hole in the transport grid,'' the study says that at current oil prices of $130 a barrel, several large and small US airlines are set to default on their obligations to creditors, anytime from end-2008 to early 2009.
According to the study, oil at current levels of $130 will increase yearly costs for carriers by $30 billion over similar costs in 2007. It says fare increases and incremental fees will offset increased costs only by $4 billion.
"The implication is that several large and small airlines will ultimately end up in bankruptcy, and of those, some will be forced to liquidate," the study said.
According to the study, every $10 increase in the price of oil results in $4 billion in additional costs for the carriers. With oil prices in the $135 range, the study said, airlines "could be forced to park upwards of 1,000 aircraft and shed over 80,000 employees, and still not return to health.''
"The consequences will be devastating to US jobs, families, businesses, communities and our American way of life."
According to the study in order to compensate oil prices at $130-140, fares would have to go up by 21-24 per cent and seat capacity brought down by 18-20 per cent.
"Were oil to climb toward $200, as some analysts predict, the damage escalates and the airline industry could be forced to shrink 35 percent or more," the study said.
