Is the Airline Industry Collapsing?

Hi everyone, as all of us know the fuel price is rising higher everyday and there seems to be no STOP to this matter. Everyone is effected by this crisis but not more than the airline companies. This post will be on the effects faced by airline companies and why is it so..and this directly will effect those that travels alot. The article below will help you all understand better on this matter.

At least one American airline company goes bankrupt every week due to the raised price of fuel, the viability of commercial air traffic thusly being put under question. Low cost European companies like EasyJet and Ryanair are affected as well.

According to data provided by ATA (US Air Transport Association) six airline companies closed since the beginning of April and the seventh was put under protection of article 11 from the law on bankruptcy.

Since the beginning of the year 25 airline companies had to call off their flights, “exclusively because of the costs”, according to an ATA official. The rising of oil price at the international stock markets made the price of kerosene rise in the last 12 months by 65%. Eos, a company that provides transatlantic flights with business class only started bankruptcy procedures on April 26th.

Maxjet, the direct competitor of Eos had ceased its activity four months before Eos. Aloha Airlines left the market on 31st March after 60 years of existence. Analysts consider that 20% of the American internal flights should be discontinued. Considering the price of $135/barrel, a transatlantic flight of an Boeing 767 costs $80 000, compared to $57 800 last year.

These kind of problems are faced not only by companies in the USA, but all over the world. “In the last six months we suspended 25 airline companies from the financial compensation system, the most important intentness of this kind in the system’s history” according to Anthony Concil, IATA’s spokesman.

To prevent financial problems, IATA, who incorporates 240 airline companies, created a compensating system among most of its members, allowing its customer’s protection, especially in cases of insolvency. Thus, when a client is purchasing a flying ticket from a travel agency, the agency is paying the money to IATA, who pays the airline company that takes the customer. If there are serious financial problems, the company is suspended from the system, to grant a possible repayment to the clients.

A similar precedent record occurred right after 11th September when 8 airline companies were excluded from IATA, among which Swissair, the Belgian airline company Sabena or Ansett, an Australian airline company.

Another company confronting with this financial problem generated by oil price is the American Low Cost company Skybus Airlines, founded in 2004 with its headquarters in Ohio. The airline company started bankruptcy procedures in April this year. The low cost company couldn’t overcome the “combination of rising jet fuel costs and a slowing economic environment”, announced the company.

In the same week another two companies went bankrupt, ATA Airlines and Aloha Airlines. ATA is an Indian low cost charter air line, ‘filed for Chapter 11 status Wednesday as a result of financial problems’ following the loss of a key contract for our military charter business," the company said (CNN).

The increased price of fuel can and will have severe effects not only on small airline companies, but on the whole industry. Left without money, small airline companies are risking not only restructuring, but bankruptcy as well. 6 500 United Airlines pilots were informed last month that 950 of them will be let out by the end of 2009. This measure is part of a restructuring plan of the company, who intends to reduce it’s fleet by 100 airplanes to overcome the high price of fuel.

United Airlines is not the only company in this situation. Since the end of May four large American airline companies, Delta Air Lines, American Airlines, Continental Airlines and US Airways Group, will fire around 10 000 employees. Air Canada declared as well that 2 000 employees will be fired because the kerosene used in flights will be more expensive by $1 billion in 2008 than in 2007.