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Airline bulletin provides late breaking information on airlines, fares, and travel. Want the best deals on last minute travel. 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.
The question is, will these cuts be enough. 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.
But their employers could be hit hardest by an economic downturn, and may have less of an ability to keep funding pricey travel. 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. Adding service to a market that has little nonstop service to the us offers greater risks and rewards than would a on an already established route.
With the heavy demand on fuel resources that international require, many carriers may not allocate a sufficient amount of time to let their new gain enough demand to a point where they can be profitable, because the initial losses will simply too severe due to high fuel costs.
Any route takes time to gain demand and become profitable, but in this environment, airlines may be more risk adverse. This may have good short term implications for airline balance sheets, but if the new international markets airlines tout really do warrant service, then other carriers, foreign carriers, may make the leap to start service and get a valuable head start on carriers in terms of gaining market share.
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