Friday, 1 August 2008

Stormy weather ahead? - Flights, fares and the economy

The chief executive of British Airways, Willie Walsh, expressed concern today that rising fuel costs, in combination with low consumer confidence, could be about to take its toll on the airline industry. The downturn in the economy has already put twenty-five airlines out of business this year, including the business carrier Silverjet, based out of Luton.

So just as we have all got used to cheaper airfares, are prices about to dramatically rise?

BA will be cutting some of its flights, no doubt raising questions about the need for a third runway at Heathrow. BA will also apparently be raising fares by about 4 per cent.

Earlier in the week Ryanair were being a little pessimistic, with Michael O’Leary saying that fares were probably going to rise by 5 per cent.

Back in June of this year, EasyJet said that its costs had risen by £4 per customer due to the increased cost of fuel.

So, is it really all doom and gloom?

Well looking at it in terms of profits, Ryanair have had a 20 percent rise in net profit, earlier in the summer BA celebrated record pre-tax profits of £883 million, and EasyJet are expected to make a full-year profit of £150 million.

The major airlines could well be in a good position to economically survive the sudden increase in fuel prices, due to their fuel hedging strategies of buying fuel in advance at a fixed price. BA has bought about two-thirds of its fuel at $86 a barrel until March 2009.

So let’s hope that the air industry will successfully ride out the current economic storm, and that consumers won’t be finding airfares to be out of reach.

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