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Moreover united and northwest have issued warnings that legacy carriers may need to shrink in order to survive by trimming routes that simply are not profitable with such high fuel prices, especially those on higher cost regional jet aircraft. Perhaps the greater uncertainty that carriers face is not what the price of crude oil will be tomorrow, but rather what demand will be for air travel, particularly from business travelers, in the coming months and years, given a slowing economy.
While the rise in oil prices has not helped the economy, most of the reasons for the recent economic slowdown are independent of oil prices, and so airlines are feeling a double whammy from the economic slowdown and the recent rise in oil prices.
What airlines have been able to count on in recent years is that demand is still strong, both from business and leisure travelers. Many travelers who work for small businesses or others who have unmanaged travel accounts provide lucrative yields to carriers.
This would challenge airlines, especially because business travelers have a greater ability than leisure travelers to deal with the fare increases that airlines have had to impose due to rising fuel prices. As a result, many legacy carriers, are looking to expand abroad, where they feel demand will pick up more in the near future.
Whether this is true or not is unclear, but there are two key drawbacks that carriers need to be aware of with regard to this expansion. The first is that many of these long haul, while offering higher yields, also have higher fuel bills to go along with them.
While legacy carriers can afford these fuel bills for the time being, because the yields are higher, many of these routes could be cut too. Many legacy carriers are expanding to new markets, markets that have little nonstop service to the us.
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