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Airline Industry Headed Toward Catastrophe

June 13, 2008 By: George Dooley

Affordable air travel and jobs are at risk, according to a study issued by AirlineForecasts, LLC and the Business Travel Coalition (BTC). The study claims that current oil prices will force several large and small U.S. airlines to default on their obligations to creditors beginning at the end of 2008 and early 2009.

The study estimates that $130 per barrel oil prices will increase yearly airline costs by $30 billion, while airlines will be able to generate only $4 billion in fare increases and incremental fees. The implication of this alarming trend is that several large and small airlines will ultimately end up in bankruptcy and, of those, some will be forced to liquidate.

“U.S. commercial aviation is in full-blown crisis and heading towards a catastrophe,” the study states. “Airlines are the primary source of inter-city transportation, critical to national and local economic development, the flow of human capital, movement of just-in-time parts for manufacturing, perishable food and other goods critical to our economy. With airlines gravely threatened, so is our economic well-being.”

The study also claims that industry fares will have to increase by at least 20 percent across the board and on average just to cover the dramatic increase in fuel costs from 2007—which is not possible given the level of uneconomic seat capacity in the system today. Seat capacity will also shrink by 15 percent to 20 percent.

“Stabilizing this ailing industry must become a national policy priority,” the report states. “Many members of Congress, federal regulatory officials, state legislators and governors have yet to fully appreciate the devastating impact an oil-crippled airline industry will wreak on our culture and our national and local economies.”


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