Rising fuel costs are on the minds of practically everyone because they are affecting the price of almost everything from school lunches to construction materials. To cope with this unprecedented situation, a variety of “solutions” are being implemented by both average consumers and major corporations, particularly those associated with transportation such as airlines.
In 2000, jet fuel prices averaged about 90.1 cents per gallon. Today, airlines are paying more than three times that much and the per-gallon price is expected to climb even higher by the end of the year. In many instances, airlines in the US are being hit harder than foreign airlines since the dollar, by which oil is priced, is weaker than several other currencies.
These increases in the price of oil have severely impacted the airline industry, which was already in the midst of some major restructuring. Historically, the cost of fuel accounted for about 10%-15% of passenger airline operating budgets. Today, that amount is anywhere from 30% to 50%, leaving very little opportunity of achieving sustainable profit margins through further increases in efficiency or other traditional means. With the overall airline industry using approximately 19.5 billion gallons of jet fuel per year, even a penny rise in price adds an extra $195 million to the industry’s business expenses.
In the past, air carriers in the US sought to be leaders by flying more airplanes more frequently over more routes. Today, however, in an endeavor to conserve fuel and thereby save money, airlines have implemented a variety of procedures. Some of them may not be that noticeable to the average passenger. These include more accurately measuring onboard weight, cruising longer at higher altitudes, analyzing weather conditions to a greater extent, and implementing better flight-management systems. Some airlines are also replacing aging airplanes with ones that are more fuel efficient and pooling fuel purchases with other carriers.
Further cost-cutting and revenue-enhancing methods being used by airlines are perhaps more discernable by those who fly. They include layoffs of employees, hikes in ticket prices, fuel surcharges, and extra expenses for overweight and, in some cases, even checked baggage within weight ranges. All sorts of small, nagging charges are also creeping in (even premiums to sit in the front part of coach). In addition, several airlines have redesigned their hubs to enable them to operate more efficiently and have also changed routes and schedules, along with reducing the frequency of flights to certain destinations. Less dramatic things like eliminating pillows to reduce weight have also been implemented.
The fare increases are probably the most noticeable change air travelers have experienced. Even so, the amounts they are now paying per mile domestically (some 7%-8% above this time last year) do not even come close to covering the added costs of fuel for the airlines. Think of how much more you are paying for gasoline, and you begin to get the picture.
According to the Air Transport Association, approximately 2.7 million fewer people may be flying this summer compared to the same period last year. Contributing factors to this scenario are the slowdown in the economy and the fact that airlines have been forced to raise fares.
Some airline industry analysts predict that carriers could lose a combined total of $7.2 billion in 2008 if fuel prices remain at current levels, even more if they climb further. The amount of money airlines have lost over the past several months has been reflected in a corresponding drop in their stock share prices.
Two of the major carriers headquartered in Texas—American and Continental—experienced significant losses in the first quarter of this year, with Southwest Airlines barely pulling out a small profit.
Moreover, there is a fear that unless fuel prices subside, the majority of passengers in the future could be business travelers along with the more affluent who are able to afford the increased costs.
Although there is no certainty regarding what may happen in the weeks and months ahead, the difficulties that the airline industry is facing will inevitably impact passengers. Thus, at least for the immediate future, the new norm for travelers will be fewer choices, higher-priced tickets, and more than the usual amount of aggravation..