High Fuel costs kill off a US airline every week
Pastor Dale Morgan
*High Fuel costs kill off a US airline every week*
* James Doran in New York
* The Observer,
* Sunday May 25 2008
Airlines in America are closing down or going bankrupt at a rate of one
a week as the rocketing price of oil forces the industry to its knees
and calls into question the very viability of commercial air travel.
In Britain, analysts say low-cost carriers such as EasyJet and Ryanair
could be hammered. Andrew Fitchie, analyst at Collins Stewart, said:
'The no-frills airlines are in the eye of the storm. They will have to
slash capacity, stay on the tarmac or look at merging. There will be
casualties.'
According to the US Air Transport Association (ATA) six airlines have
been forced to close down since the beginning of April, while another
has filed for Chapter 11 bankruptcy protection.
'There has certainly been an acceleration of shutdowns in the past month
or so,' a spokesman for ATA said, adding that 10 carriers had been
forced to close since 25 December. 'This is all to do with the cost of
jet fuel. Carriers simply cannot afford it.'
And as analysts predict that the price of oil will continue to rise,
there are fears that the worst is yet to come. 'There has to be a
fundamental change in the economics of operating commercial aircraft,'
said an ATA spokesman.
ATA claims that every dollar added to the cost of a barrel of oil adds
$456m a year in jet-fuel costs for US airlines. The ongoing increases in
the oil price over the past year have sent the price of jet fuel soaring
by more than 65 per cent in just 12 months.
Eos, a business-class-only transatlantic carrier, was one of the more
high-profile companies to go bust, filing for Chapter 11 on 26 April.
Just four months earlier, Eos rival Maxjet also threw in the towel.
Aloha Airlines, a regional carrier based in Hawaii for more than 60
years, closed on 31 March. Other carriers that have gone bust, such as
SkyBus, Champion and Air Midwest, have all cited increasing jet-fuel
costs as a primary reason for going out of business.
Ray Neidl, airlines analyst at investment bank Calyon, said the business
model used by all airlines had become unworkable. 'The industry is at a
crossroads with current oil prices, which are up 60 per cent since last
October and now account for about 40 per cent of [airline] operating
costs. We believe that a minimum of 20 per cent of domestic capacity
must be removed, the equivalent of the domestic capacity of US Airways,
Continental and Frontier Airlines combined.'
· The airline crisis is claiming casualties in the UK too. On Friday
shares in Silverjet were suspended on the Alternative Investment Market
after the business-class-only airline admitted it was unable to secure
funding to carry on doing business. Silverjet is also a victim of
soaring fuel prices. With oil at $135 a barrel, fuel costs for a single
transatlantic trip on a Silverjet B767 are estimated to have jumped to
£44,000 from just £28,600 a year ago.