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High fuel prices cause airlines to make changes

Posted June 24, 2008

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— Airline ticket prices could rise about 50 percent over the next few years, one aviation expert says, and that could change the face of the friendly skies.

"That means we may go back to the 1960s and 1970s, where the typical traveler was a higher-income traveler, and we move away from the mass movement," said John D. Kasarda, director of the Kenan Institute of Private Enterprise at the University of North Carolina at Chapel Hill's Kenan-Flagler Business School.

As with most aspects of transportation, gasoline prices are forcing transformation in the airline industry.

Kasarda says that a few years ago, fuel was 20 percent of an airline's cost. It's now up to 70 percent for some carriers.

To help cover the extra costs, most U.S. carriers are now charging fees for services they once offered at no extra cost. Most recently, for example, American Airlines began charging fees to check baggage. Other carriers, such as U.S. Airways and United Airlines are expected to follow suit.

Kasarda also believes that airlines will eventually charge fees for other luxuries and perks, like window seats, aisle seats, seats in exit rows and snacks.

"They're going to charge for everything they can," he said.

Coupled with rising fuel prices, Kasarda says, U.S. carriers have not invested in newer equipment, unlike their European counterparts.

"As a result, their fuel efficiencies are very, very low and their maintenance costs are much, much higher," he said.

Kasarda said that In the short-term, he expects more airline mergers to reduce the number of available seats.

Ultimately, he expects there to be no more than four legacy carriers available. Some will merge, he said, and others will go under.

"So this is an effort to get control, not only of costs, but to shrink the capacity so supply does not exceed demand. Therefore, prices can rise," the professor said.

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  • raldude Jun 25, 2008

    Airlines are going to pass the fees on to the public. I can either accept it or take alternate transportaion. I no more expect an airline to feed me as I do a restaurant to take me somewhere. I want a low low fare and will go without the extras to get it.

  • NeverSurrender Jun 25, 2008

    "Without some sort of regulation to remove the constant need to undercut each others prices there's no way they can invest in better aircraft for the future."

    ---

    That would be the absolutely wrong approach to take to fix the industry's ills. What needs to happen is a culling of the herd via market forces and that means eliminating the abuse of Chapter 11 by the airlines where companies can enter Chapter 11, jettison all of their contracts and obligations, and come out the other end with a cost structure that does not allow for fair competition in the marketplace.

    AA was the only major carrier besides WN that didn't enter Chapter 11 after 9/11. All of their competitors got much stronger because they were able to jettison the expensive pension plans, essentially emasculate their unions, and come out with a cost structure much closer to WN's.

    Should US or UA or NW survived after 9/11 if normal market forces were in play? Nope.

    It's going to be a painful process but it's needed.

  • NeverSurrender Jun 25, 2008

    "We must speak out! The US commercial air transportation industry has been in serious trouble since the Bush Administration created the TSA."

    ---

    TSA has absolutely nothing to do with the state of the industry today. Granted, inconsistent application of regulations doesn't help the flying experience but to say they are the only reason the airlines are near bankruptcy proceedings again shows a complete ignorance of the industry's workings.

    The real problem was the government bailout of the airlines after 9/11 and Chapter 11 of the bankruptcy code which allowed airlines that should have been liquidated to keep flying. That coupled with the insane oil speculating going on right now is putting the screws to airlines with inefficient route structures, aging aircraft that are gas guzzlers, and high-priced employees due to union contracts.

    Our country has no need for the capacity for nine legacy domestic carriers and Southwest is now the only carrier with a business model that works.

  • WXYZ Jun 25, 2008

    A Message to All U.S. airline companies:

    Remember This: When TSA Goes, We Will Come!

    Wayne Gray

  • ROA2RDU Jun 25, 2008

    "...Kasarda says that a few years ago, fuel was 20 percent of an airline's cost. It's now up to 70 percent for some carriers."

    WRAL - make this bozo name the carrier that's fuel cost are 70%. Nonsense - I think the figures are more like they were 10-12% noe they are 20-30%.

    "...Coupled with rising fuel prices, Kasarda says, U.S. carriers have not invested in newer equipment, unlike their European counterparts.

    "As a result, their fuel efficiencies are very, very low and their maintenance costs are much, much higher," he said. ..."

    Again, nope - Fuel inefficiencies have some impact - but, US domestic service requires longer stage lengths than our counter parts on other countries. The longer the stage length, the less per mile you can charge. Think about we have to fly NYC-LAX, where does Air France have that domestic problem.

    Also our airlines are reliant on RJ's - 50 seater's are hard to make a profit with with oil at $130 a barrel.

  • littlebobeep Jun 25, 2008

    Deregulation and competition may have been good for the airlines at one time but surely now is the time to regulate them again and force them to charge reasonable and consistent air fares that allow them to operate as a viable company whilst providing decent service to their customers.
    Right now the industry is so cut throat that I'm amazed any of the airlines are even managing to keep flying and break even. Without some sort of regulation to remove the constant need to undercut each others prices there's no way they can invest in better aircraft for the future.
    Stabilizing prices might also cause the airlines to fight for customers on other basis that cost, like for example better service.
    Right now I wouldn't fly unless it was absolutely necessary or there were no alternative. Not because of cost, but simply the pure aggravation and the unpleasantness of the entire experience.
    Bring back service, stop gouging the customer and they might find people returning to the skys.

  • Panther Jun 25, 2008

    WXYZ, Thank you!!! At least someone understands.

  • Panther Jun 25, 2008

    “The law around foreign ownership of airlines needs to be revisited.” Absolutely not! The American airline industry has the best trained and qualified pilots in the world. We also have the most stringent regulations requiring maintenance to be preformed at specified time to insure of the passengers safety. Yes there are problems but no pilot will depart knowing that he is flying something that does not meet airworthy standards as outlined by the FAA. This is a dangerous slippery slope that the American public does not want to go.

  • Panther Jun 25, 2008

    "Airline ticket prices could rise about 50 percent over the next few years, one aviation expert says, and that could change the face of the friendly skies."
    Could Rise? Does anyone out there know how expensive Aviation fuel is today? I can assure you that ticket prices will rise quickly in the next 4 months or the unemployment lines will out pace them from the aviation industry.

  • WXYZ Jun 25, 2008

    We must speak out! The US commercial air transportation industry has been in serious trouble since the Bush Administration created the TSA. This created inherent, incompatible and irreconcilable conflicts between the goals of the airlines and the goals of TSA. The only reason for the existence of TSA in airports is fear, followed by mandated suspicion and distrust, which demands that the citizen/customer/passenger give up all self-respect and civil rights. This is intolerable. I must apologize to all U.S. airlines and say: "This is not your fault and I believe that you have and are doing as good as the government will allow you to do." My family, friends and I agreed to stop traveling by air several years ago, due to the abuses committed by TSA on the airports, airlines and the airlines customers. I know of no other legal way to punish TSA or stop them from crippling the the US airline industry. The system was not broke and TSA certainly was and is not needed.

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