Record-high oil prices have sparked a crisis in the airline industry and we have seen some weaker airlines already dying off at the first hurdle in America while the remaining carriers that are left have now begun to desperately restructure their operations as they face the very real possibility that, far from declining, the price of oil could continue its upward march. So the question now is, how are they coping with the current situation and would they be able to stay in the industry if the oil price continue to rise? I did some research and Im going to tell you what I found.
I think you will probably agree with me when I say when there is such a problem concerning the oil, the airline industry would undoubtedly be one of the industry that would be the hardest hit. History have showed us what it can do and this time, it is no different either. Already in America, we have seen several low budget carriers shutting down their business because they are unable to cope with the rising cost of fuel and here in Asia, Oasis Hong Kong Airlines has recently join Indonesia's Adam Air in closing down their business. The big boys are not spared either. While they are still financially strong enough to survive the crisis, it still has taken its toll on them. American Airlines, the world's largest carrier in terms of traffic will slash domestic capacity by 11-12% year over year in the fourth quarter and retire at least 75 mainline and regional aircraft. The carrier also announced that it would introduce a $15 fee for the first checked bag as part of a package of new fee increases aimed at boosting revenues. British Airways meanwhile has said that it will review its capacity, costs and network in the context of the economic pressures and high fuel prices despite posting a strong financial performance for the 12-month period ending 31 March 2008. There are also other non-conventional ways to cut expenses. Just today, US Airways said that it would stop offering in-flight movies on domestic flights.
So how about our Asian airlines you may ask? Of course they are affected too. Our own Singapore Airlines (SIA) has recently raised their fuel surcharge back in March. I also found out that SIA has also slashed its capacity by 30 percent. Australian flag carrier Qantas meanwhile has announced plans back in May to slash domestic capacity by five percent, cut payroll, and retire several aircraft. The airline also reduced service to Asia. Thai Airways have said that it is cancelling its direct flight from Bangkok to New York, starting from this month, and selling four planes used on that route. Malaysia Airlines said it would freeze recruitment and was considering axing more routes as part of cost-cutting measures triggered by rising fuel prices. Air New Zealand today says that it has frozen the salaries of senior executives, cut out bonus payments and is reviewing "nonessential" activities to cut staff numbers as they are unable to cope with the soaring fuel costs and sliding passenger demands. Then there are of course, the budget airlines such as AirAsia and Tiger Airways. You would thought that they would have gone burst already by now but both airlines has however said that it will survive the turbulence and even emerge stronger.
I certainly hope that is the case because I think in this part of the region, the budget airlines industry here is a very profitable business because the people here usually like to travel to the nearby countries, so it would be a sad thing if it is gone. That doesnt mean though that they do not have to do anything to survive the current crisis, AirAsia for example have raised its fuel surcharges too if Im not mistaken but if they can keep the travel charges to a reasonable amount, Im sure that they will be able to maintain their passenger demands because certainly if the passengers are unable to cope with the expensive charges of the national carriers anymore, Im sure they would be willing to turn into budget carriers so there is an opportunity for them to work on in this kind of situation I think. The industry of low-cost carriers is actually a lucrative peice of business if you ask me. Nowadays, you can see the emergence of many low-cost carriers not just in Asia but in Europe and in the Middle East as well but at the same time, I think it can be a very risky business especially when you are facing with this kind of situation.
Low-cost carriers such as AirAsia and Tiger Airways might still be surviving right now but Im sure it isnt easy for them to do it and it will not be getting much easier if the fuel price continue to rise. If somehow the fuel price manage to hit the $200 mark by the end of the year, then I think we would see a completely different situation. But right now, it seems like that situation wont be happening. There has been some good news regarding oil price this past few days, instead of going up, it is going down and I hope it will continue on that way but Im not so optimistic. Whatever it is, as the number of airline casualties continues to grow and as carriers restructure their operations to make sure they're not next, it is becoming increasingly apparent that those with the biggest profit and the most fuel-efficient fleets will be the ones that survive as the industry reshapes to face what some expect to be the worst downturn in years.
*The informations found on this post was taken from flightglobal.com and AFP.
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