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Looking Beyond a $2 Can of Coke

July 7, 2008 By: George Dooley Travel Agent

A new report offers a gloomy forecast for the airline industry

us airways

US Airways is just one of the airlines affected by rising fuel costs

The airline industry is in crisis, and fuel-cost-driven reductions in airline services are beginning to impact leisure and business travelers, as well as travel agents. The $2 charge for a can of soda or a $20 charge for a second bag isn’t going to cut it. The skyrocketing price of aviation fuel will have devastating implications far beyond new surcharges for checked bags and in-flight beverage services.

A new, deeply pessimistic study prepared by the Business Travel Coalition (BTC) sees U.S. airlines and their passengers facing a dark future, noting: “Fast-approaching airline liquidations will cripple the U.S. economy that depends on affordable, frequent intercity air transportation.”

Massive job losses, supply-chain disruption, declining business activity, shrinking tax revenues, weakened American competitiveness, devastated communities and reduced tourism are just some of the predictable results from airline liquidations that could happen as early as the second half of 2008 as a direct result of unsustainable fuel prices, the BTC says.

In a new policy paper, “Beyond the Airlines’ $2 Can of Coke: Catastrophic Impact on the U.S. Economy from Oil-price Trauma in the Airline Industry,” the BTC expands on the analysis released early in June by AirlineForecasts, LLC and BTC. The study points to the real news about the airlines’ fuel problems: how multiple liquidations at legacy U.S. airlines—now a serious possibility—would have a wide-ranging impact on many facets of the U.S. economy.

The airline industry stimulates a great amount of economic activity, “much more than many people currently understand,” says BTC Chairman Kevin Mitchell. “Airline networks are an integral part of the transport grid that supports the U.S. economy, and without immediate action to bring down fuel costs, we face the economic equivalent of a major blackout later this year or early next. Unlike in a blackout, however, the cabin lights may never come back on for many U.S. airlines.”

“The runaway price of oil is seriously hurting working families at every level, and as the airline fuel crisis intensifies, the risk of major job losses in all travel and tourism sectors and in other airline-dependent industries increases as well,” says Jean McDonnell Covelli, a BTC member and president of The Travel Team Inc., a wholly owned subsidiary of Rich Products Corp. “As a matter of highest priority, elected officials must focus on devising an energy policy that will keep Americans productively traveling and working.”

The BTC paper points to nine specific impacts of a collapse of the industry:

Direct Employment. Between 30,000 and 75,000 people would lose work immediately with just one airline failure, with payroll losses of $2.3 billion to $6.7 billion.

Indirect Community Impact. Losses would ripple throughout communities.

Reduced Purchases From Suppliers. Airline purchases would cease at any failed carrier impacting companies that rely on airlines.

Impact on Tourism. The world’s largest industry would be devastated in the U.S., with severe effects in places like South Florida, Hawaii, Las Vegas and Colorado.

Effects on Logistics and Supply-Chain Management. Restaurants, pharmaceutical companies, manufacturers relying on just-in-time parts, florists, grocers and the fashion industry would be among those injured.

Decline in Business Activity. Business travel would be severely disrupted, with acute disruption in airline hubs and major cities.

Declining Tax Revenues. Loss of income taxes paid by employees, coupled with the loss of excise, use and other airline-paid taxes would be bad news for governments already struggling with declining revenues.

Increasing Government Outlays. Impacted individuals would immediately place demands on governments in the form of unemployment compensation, retraining and the demand for other resources.

Weakened U.S. Competitiveness. America competes with other countries for tourists, and with reduced airlift to the U.S., travelers would be less likely to visit the U.S. and more likely to use non-U.S. carriers.

In conclusion, the BTC sees a disaster in the making, with airline failures devastating the travel and tourism industry, including leisure and business travel, destinations, hotels, car rental firms and domestic tour operators, among many others. One industry affects numerous others, and a single closure can snowball into a devastating collapse.

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