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Page added on April 29, 2008

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Flying into trouble


The sky-high cost of fuel means that airlines are going out of business – sooner than environmentalists predicted. What does it mean?


For all the talk about how home heating and petrol pump prices are fast rising, there seems to be remarkably little comment – given our love affair with flying – about how runaway oil prices are hurting the airline industry. Within the past few weeks, a number of airlines have gone out of business – this weekend saw Eos, the business class-only airline operating routes between Stansted and the US, join the growing list. Eos follows its direct competitor Maxjet, as well as Oasis (which claimed it was the first long-haul, low-cost carrier when it began flying Hong Kong-London in late 2006 for as little as


Not all of these failures can be attributed to rising jet fuel prices alone – the economic slowdown, credit crunch, and weak dollar are taking their toll, too – but it’s the sky-high operating costs that have tipped most of them over the edge. It is now surely just a question of when, not if, one or more of the well-known carriers hits serious turbulence by going bust, or turning to consolidations and mergers for protection, as typified by the recent Northwest/Delta lovefest as well as persistent talk – despite a denial from its president this weekend – of Continental hooking up with United and/or US Airways.


You only need to look at the price of jet fuel today compared to this time last year to see what’s causing the squeeze. According to the International Air Transport Association’s fuel price monitor, the price has increased 78.2% in the past 12 months. (That’s a global average: in Europe prices have increased by 84%, making it the world’s most costly region to buy jet fuel.) In the past month alone, it has risen 8.8%. IATA estimates that this rise has added $61bn to the industry’s total fuel bill for 2008 compared to 2007. And today we have the president of Opec talking about oil prices hitting $200 a barrel. Something clearly has to give, especially for an industry that famously runs on such tight margins.


Guardian



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