What To Expect From Airlines Now That Oil Is $130 A Barrel

Scott McCartney, who writes the Wall Street Journal’s “Middle Seat” column, has some thoughts about what consumers can expect from airlines, now that oil has hit $130 a barrel. He says that “he change in oil prices from a year ago to today translates into $24.6 billion in added fuel costs for passengers and cargo airlines on an annualized basis,” which is more than the airline industry has ever earned– its best year saw $5.3 billion in earnings.

So what now?

It’s very difficult for airlines to simply raise prices to levels that cover their higher fuel costs. Raising prices chokes demand: If tickets get too expensive, business travelers make alternate plans, pick cheaper airlines or buy discounted tickets further in advance. For vacationers, if prices get too high, they don’t buy or they switch to cheaper destinations. Airlines can price themselves right out of a sale.

So to avoid that, carriers have been slap-happy with fees added at the airport, not at the ticket purchase point. A family heads off to Disney because they got a good fare – then find themselves paying $300 extra at the airport in baggage fees. Fees are essentially fare increases that airlines hope won’t choke demand.

But slapping fees on customers here, there and everywhere won’t solve the problem. Airlines will have to make big cuts in capacity, eliminating flights that just aren’t profitable with oil at $130 a barrel (as of Wednesday morning). Fewer flights means skimpier schedules for many travelers. More important, it means higher fares. The price of flying has to go up if airlines are to survive.

After AMR, the Deluge [WSJ]
(Photo: So Cal Metro )