Source: AFP Author: 06/14/2008
Subject Concerned: Opinion Airlines Aviation Fuel
The US airline industry is heading for a crash as record oil prices threaten to push several carriers into bankruptcy, threatening "our American way of life," an industry study said on June 13.
"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 a study issued by AirlineForecasts and the Business Travel Coalition.
At current oil prices near US$130 a barrel, several large and small US airlines will default on their obligations to creditors, beginning at end-2008 and early 2009, according to the study.
The study shows that oil at US$130 will increase yearly airline costs by US$30 billion, while airlines will be able to generate only US$4 billion in fare increases and incremental fees.
"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 - Oil Prices and The Looming US Aviation Industry Catastrophe: A Hole in The Transport Grid - every US$10 increase in the price of oil results in US$4 billion in additional costs for the 40 passenger-only airlines.
The airlines are on pace to spend US$30 billion more on jet fuel in 2008 versus 2007, it said.
Oil spiked to a record US$135 a week ago, nearly double last year's US$72 average, and was trading above US$130 this week.
The surge in oil prices is showing no sign of abating amid strong demand, particularly from developing powerhouses China, India and Brazil, and tight supply.
Some analysts are predicting oil will hit US$200 a barrel in the coming months, after crossing US$100 for the first time in early January.
The study found that with oil prices in the US$135 range, the airline industry "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."
To cover oil prices at US$130 to US$140, fares would have to go up by 21-24 percent and airline seat capacity reduced by 18-20 percent, the study said.
"Were oil to climb toward US$200, as some analysts predict, the damage escalates and the airline industry could be forced to shrink 35 percent or more."